Economists at ING expect CAD outperformance as the Bank of Canada (BoC) hikes on Wednesday. The USD/CAD pair could slip to the 1.2450/00 neighborhood.

A 25 bps rate hike by the BoC

“The current restrictions in Ontario – which are however due to be eased at the end of next week – make it a close call, but we think the BoC will hike interest rates by 25 basis points on Wednesday.”

“The market is currently attaching a 70% implied probability of a hike, which leaves some room for the CAD to appreciate after the announcement, especially as that should reinforce the view that the BoC will lead the Fed tightening by 1-2 months and by 25-50 basis points.” 

“We expect a drop in USD/CAD to the 1.2400/1.2450 area if our expectation for a hike prove correct.”