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 lift its policy rate by 75 bps to 3.25% at the end of the September meeting in an effort to keep inflation expectations anchored. Apart from the decision, investors will further take cues from the accompanying monetary policy statement in the absence of the post-meeting press conference.

Analysts at Wells Fargo offer a brief overview and explain: “We expect the BoC to deliver a 75 bps hike to 3.25%. We think the BoC will slow down the pace of its hikes beyond September, only taking the policy rate to 3.75% by the end of Q4-2022, although we see the risks as remaining tilted to a higher peak. We will be particularly interested in guidance on future policy from the BoC, especially against a backdrop of slowing growth and still-elevated inflation.”

How Could it Affect USD/CAD?

Ahead of the key event risk, weaker crude oil prices continue to undermine the commodity-linked loonie. This, along with relentless US dollar buying, lifts the USD/CAD pair back closer to the monthly peak touched last week. Given that the markets have fully priced in a 75 bps rate hike, the expected move is unlikely to provide any respite to the Canadian dollar.

Furthermore, a tilt toward a more conservative policy stance amid concerns about the worsening economic outlook and easing price pressures could weigh heavily on the domestic currency. This, in turn, will set the stage for an extension of the recent appreciating move for the USD/CAD pair witnessed over the past month or so.

That said, an unlikely event of a more aggressive 100 bps rate hike could trigger a significant market reaction and provide a strong boost to the Canadian dollar. The USD/CAD pair might then turn vulnerable and dive back towards the 1.3100 round-figure mark. Some follow-through selling below the 1.3075-1.3070 region could pave the way for a fall towards the 1.3035-1.3030 intermediate support en route to the 1.3000 psychological mark.

Key Notes

 •  BoC Preview: Will BoC take its foot off the pedal?

 •  BoC Preview: Forecasts from eight major banks, hiking rates again

 •  USD/CAD: Any support for the loonie from the BoC may fade rapidly – 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.