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 15:00 GMT. The Canadian central bank is widely expected to lift its benchmark rate by 50 bps to 4.25% at the end of the November meeting amid elevated inflation, robust economic activity and a super-tight jobs market. Investors will take cues from the accompanying monetary policy statement in the absence of the post-meeting press conference.

Analysts at ING offer a brief preview of the central bank event and write: “Both markets and economists are split down the middle on whether it will be a 25 bps or 50 bps hike. We favour the latter given a robust 3Q GDP outcome, the tight jobs market and the ongoing elevated inflation readings. But we acknowledge there are signs of softening in the economy. The housing market is looking vulnerable and Canadian households are more exposed to higher rates than elsewhere due to high borrowing levels so we recognise this is a very close call. We are getting very close to the peak though, which we think will be 4.5% in 1Q 2023.”

How Could it Affect USD/CAD?

Ahead of the key risk, the USD/CAD pair touches a fresh one-month high, albeit struggles to capitalize on the move beyond the 1.3700 round-figure mark. A modest US Dollar pullback from the weekly top acts as a headwind for spot prices. Furthermore, an intraday recovery in crude oil prices from the YTD low offers some support to the commodity-linked Loonie and caps the upside for the major.

The BoC is unlikely to hint towards a more aggressive tightening. Moreover, any dovish signals by the Canadian central bank will be enough to exert additional downward pressure on the domestic currency. This, in turn, suggests that the path of least resistance for the USD/CAD pair is to the upside. Spot prices seem poised to surpass the 1.3700 mark and test the next relevant hurdle near the 1.3740 zone. The momentum could get extended towards reclaiming the 1.3800 round figure.

Key Notes

 •  Bank of Canada Preview: The end of the tightening cycle is around the corner

 •  BoC Preview: Forecasts from nine major banks, very close call

 •  USD/CAD Forecast: Move beyond 1.3700 remains on the cards, BoC decision awaited

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.