When is the BoC monetary policy decision and how could it affect USD/CAD?

BoC Monetary Policy Decision – Overview

The Bank of Canada (BoC) is scheduled to announce its monetary policy decision this Wednesday at 14:00 GMT. The Canadian central bank is widely expected to hike its benchmark interest rate by another 50 bps for the first time since May 2000 to control spiralling inflation. Apart from this, investors will take cues from the accompanying monetary policy statement in the absence of the post-meeting press conference.

Analysts at TD Securities (TDS) offered a brief overview of the event and explained: “With little uncertainty around the decision itself, the focus will shift to the policy statement where we expect a hawkish tone. The Bank will note that growth and inflation are both tracking above the April MPR, and repeat that rates will need to rise further.”

How Could it Affect USD/CAD?

Ahead of the key release, the USD/CAD pair dropped to its lowest level since April 22 amid bullish crude oil prices, which tend to underpin the commodity-linked loonie. A more hawkish BoC stance would be enough to provide an additional boost to the Canadian dollar and continue exerting downward pressure on the major. Conversely, a neutral stance might do little to impress bullish traders, though modest US dollar strength could lend some support to the pair.

From current levels, the 1.2600 round-figure mark is likely to act as immediate support, below which the USD/CAD pair seems all set to accelerate the fall towards the 1.2530-1.2525 region. This is closely followed by the 1.2500 psychological mark, which if broken decisively would be seen as a fresh trigger for bearish traders and ave the way for an extension of the downward trajectory.

On the flip side, any meaningful recovery attempt might now confront stiff resistance near the 1.2675-1.2685 confluence support breakpoint. The said area comprised of the 100-day SMA and the 61.8% Fibonacci retracement level of the 1.2459-1.3077 move up. Some follow-through buying, leading to a subsequent move beyond the 1.2700 mark could lift the USD/CAD pair towards the 1.2730-1.2735 hurdle, en-route the 1.2770 supply zone.

Key Notes

 •  BOC Preview: USD/CAD set to tumble on hawkish hike and optimal conditions for bears

 •  BoC Preview: Forecasts from six major banks, hawkish hike

 •  USD/CAD to stay below 1.2700/50 as BoC is committed to fight inflation – ING

About the BoC Interest Rate Decision

BoC Interest Rate Decision is announced by the Bank of Canada. If the BoC is hawkish about the inflationary outlook of the economy and raises the interest rates it is positive, or bullish, for the CAD. Likewise, if the BoC has a dovish view on the Canadian economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish.