The Bank of Canada’s (BoC) last meeting of the year today is likely to attract considerable attention. USD/CAD climbed to a monthly high of 1.3677 on Tuesday. A small rate step and a not very hawkish statement could weigh on the Loonie, economists at Commerzbank report.

More than a large rate step needed to once again fuel rate hike expectations

“Will the Loonie be able to benefit if the BoC surprises with a large rate step? We do not consider the prospects of that to be particularly promising. The CAD was unable to benefit from the recent labour market data. As a result of the falling oil price, it recorded losses against USD.”

“It is likely to take more than a large rate step to once again fuel rate hike expectations. The BoC would probably have to signal at the same time that more needs to be done about inflation risks, so that an end of the rate cycle is not yet in sight and adjust its projections accordingly.”

“The combination of a small rate step and a not very hawkish statement and projections might lead to disappointment and thus to further CAD losses.”

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