The Bank of Canada (BoC) meets today to decide on the size of the increase in the key policy rate. USD/CAD could bounce if the BoC delivers a 50 basis points hike instead of 75 bps as expected, economists at MUFG Bank report.

Therei is more logic in hiking by 50 bps rather than 75 bps

“Given the work done by the BoC and given the downside risks to growth that is becoming more evident in the data we think there’s more logic in hiking by 50 bps rather than 75 bps.”

“The revised forecasts to be released today as well may be the justification for slowing the pace with most forecasts now indicating a technical recession in 2023.”

“If the BoC does pitch for 50 bps, with 75 bps more than priced, we would expect USD/CAD to bounce although with USD sentiment particularly negative at present, the move might not be as large as it would have been say last week prior to the speculation of a Fed shift in tone next week.”

See – BoC Preview: Forecasts from 10 major banks, taking what is offered, a 75 bps hike