USD/CAD has drifted back to 1.2570. Economists at Scotiabank expect the pair to give up a little more of last week’s rally and push towards 1.2500 on a Bank of Canada (BoC) rate hike.

Loonie to plummet on a dovish outcome

“We expect the BoC to raise the Overnight Target Rate 25bps today. The policy statement should point to additional hikes coming in relatively quick order as well. A hike and a hawkish-looking statement will drive the CAD higher.”

“In the event of a more dovish outcome, the CAD will fall quite sharply (depending on what sort of policy outlook the Bank describes in its statement), given what the swaps curve has already factored in for the BoC moving forward.” 

“The CAD’s reaction may be somewhat muted as markets await the FOMC result this afternoon but we think a rate hike plus a policy statement/press conference which supports the outlook for a sustained tightening round will drive USD/CAD back to/below 1.25 in the near-term.”

See – BoC Preview: Forecasts from 10 major banks, to hike or not to hike?