BoC Monetary Policy Decision: Overview
The Bank of Canada (BoC) is expected to announces its monetary policy decision this Wednesday at 15:00 GMT and is expected to raise its benchmark interest rate by 25 bps to 0.50%. This would mark the first rate hike since October 2018 and the beginning of the tightening cycle amid Canada’s recent rise in annual inflation rate to the highest level since 1991. Aside from this, investors will closely scrutinize the statement. attached monetary policy for new clues on the central bank’s policy outlook.
According to Dhwani Mehta, Senior Analyst and Publisher at FXStreet: As the 25bp BOC rate liftoff is well priced in by the market, the focus will remain on any aggressive tilt in forward guidance. Governor Tiff Macklem and Co. could hint at aggressive tightening plans rather than a gradual approach toward normalizing monetary policy.
How could it affect USD/CAD?
Heading into key event risk, the USD/CAD pair pulled back below the 1.2700 mark and was pressured by a combination of factors. A nice pick-up in risk-off sentiment forced the safe-haven US dollar to trim some of its early gains to the highest level since June 2020. High underpinned the commodity-linked Canadian dollar and put some downward pressure on the pair .
A more aggressive BoC would be enough to provide an additional boost to the loonie and pave the way for a further short-term depreciation move for the pair. That said, any immediate market reaction is more likely to be limited as focus remains glued to developments surrounding the Russia-Ukraine saga. However, the setup seems tilted in favor of bearish traders and supports the prospects for further losses.
From current levels, any further slide is likely to find decent support near 1.2650. This is followed by the February monthly low around the 1.2635 region, which coincides with the 100-day SMA. A convincing break below will make the pair vulnerable to breaking below the 1.2600 mark and testing the 1.2570-1.2560 support before finally falling to the very important 200-day SMA near the mid-1.2500 level.
On the other hand, the 1.2750 region now appears to have emerged as immediate resistance against the static hurdle at 1.2780-1.2785. Some follow-up buying beyond 1.2800 could change the bias in favor of bullish traders and push the pair towards last week’s high around the 1.2875-1.2880 area. Further strength beyond 1.2900 has the potential to push the pair to a 2021 high around the 1.2960-1.2965 zone.
About the BoC interest rate decision
The BoC interest rate decision is announced by the Bank of Canada. If the BoC is aggressive on the inflation outlook for the economy and raises interest rates, it is positive, or bullish, for the CAD. Similarly, if the BoC takes a dovish view on the Canadian economy and maintains the current interest rate, or lowers it, it is considered negative or bearish.
Source: Fx Street
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