Canada Interest Rate Decision Preview: BoC set to stand pat ahead of possible policy pivot in summer
- The Bank of Canada (BoC) is expected to keep its rates unchanged.
- The Canadian Dollar has met a tough resistance at around 1.3600.
- Canadian inflation remains sticky, although on a downward path.
There is widespread expectation that the Bank of Canada (BoC) will keep its policy rate steady at 5.0% for the fifth consecutive time during its upcoming policy meeting on Wednesday. The Canadian Dollar (CAD) has experienced significant depreciation against the US Dollar (USD) since the start of the new year, following a sharp rise from its November lows around 1.3900. This week, USD/CAD has maintained a consolidative theme in the upper end of the range, in line with the rest of the FX universe.
Headline inflation, tracked by the Consumer Price Index (CPI), kept its downtrend in the first month of the year even as the BOC’s Core CPI showed signs of sticky price pressures. In this context, the central bank is predicted to deliver a prudent approach, highlighting the need to assess further incoming data as well as their sustainability before deciding on any move on rates, namely the start of the easing cycle. This last view matches that of most of the bank’s G10 peers (the Federal Reserve, ECB, Bank of England, and Reserve Bank of Australia).
A hint of caution looms
Since its January gathering, the BoC is expected to maintain a conservative outlook on GDP growth. Back to that meeting, the bank anticipated a growth rate of 0.8% this year and 2.4% in 2025, aligning with their previous forecast released in October.
Regarding inflation, Governor Tiff Macklem said at his press conference in January that the surge in shelter prices is the primary driver of inflation exceeding the target, adding that the journey towards achieving 2% inflation is expected to be gradual with lingering risks. He argued that the policy interest rate of 5% is deemed necessary to further subdue inflationary pressures, while the focus of discussions regarding future policy is shifting from whether monetary policy is sufficiently restrictive to how long the current stance should be maintained.
From the latest news, fifteen out of twenty economists warned that there is a higher likelihood of the first rate cut by the Bank of Canada occurring later than initially predicted rather than sooner. Additionally, nineteen out of thirty-one economists anticipate that the Bank of Canada will reduce the overnight rate from 5.00% to 4.75% in June.
According to analysts at TD Securities: “We look for the BoC to stick to the recent script as it holds the overnight rate at 5.00% and continues to seek more evidence that inflation is on track for a sustained return to 2%. We look for the overall message to remain one of cautious optimism, and while the January CPI report skews risks towards a more dovish outcome, we do not expect the Bank will overreact to a single data point.”
When will the BoC release its monetary policy decision and how could it affect USD/CAD?
The Bank of Canada will announce its policy decision at 14:45 GMT on Wednesday, followed by the usual press conference by Governor Macklem at 15:30 GMT.
Banning surprises, any anticipated effect on the Canadian currency is expected to be minimal, if any. A cautious decision to maintain current conditions might lead to a short-term, reflexive decline in USD/CAD, although its duration and magnitude are unlikely to be significant. It’s worth noting that much of the upward movement in the spot rate so far this year is attributed to the dynamics of the USD.
According to Pablo Piovano, Senior Analyst at FXStreet.com, “the gradual uptrend in USD/CAD in place since the beginning of the year appears reinforced by the recent surpass of the key 200-day SMA at 1.3479. However, this trend has so far met quite a decent barrier at the 1.3600 neighbourhood. A sustainable break above this region could motivate the pair to set sails to the November 2023 peak of 1.3898 (November 1).”
Piovano adds: “If sellers regain the upper hand, the 55-day SMA at 1.3428 should offer temporary contention prior to the weekly low of 1.3358 (January 31). Extra weakness from here could open the door to a move to the December 2023 bottom of 1.3177 (December 27).”
Economic Indicator
Canada BoC Press Conference
After Bank of Canada (BoC) meetings and the release of the Monetary Policy Report, the BoC Governor and Senior Deputy Governor hold a press conference at which they field questions from the media. The press conference has two parts – first a prepared statement is read out, then the conference is open to questions from the press. Hawkish comments tend to boost the Canadian Dollar (CAD), while a dovish message tends to weaken it.
Canadian Dollar price today
The table below shows the percentage change of Canadian Dollar (CAD) against listed major currencies today. Canadian Dollar was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.06% | 0.02% | 0.07% | 0.17% | -0.26% | 0.19% | -0.02% | |
| EUR | -0.07% | -0.06% | 0.01% | 0.07% | -0.32% | 0.10% | -0.05% | |
| GBP | -0.01% | 0.05% | 0.06% | 0.13% | -0.27% | 0.19% | 0.01% | |
| CAD | -0.08% | -0.03% | -0.07% | 0.06% | -0.34% | 0.10% | -0.07% | |
| AUD | -0.17% | -0.09% | -0.14% | -0.08% | -0.40% | 0.03% | -0.14% | |
| JPY | 0.26% | 0.31% | 0.23% | 0.34% | 0.39% | 0.43% | 0.26% | |
| NZD | -0.19% | -0.12% | -0.20% | -0.12% | -0.04% | -0.45% | -0.16% | |
| CHF | -0.03% | 0.03% | -0.01% | 0.04% | 0.14% | -0.29% | 0.17% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
