When is the BoC monetary policy decision and how could it affect USD/CAD?

BoC monetary policy decision - Overview

The Bank of Canada (BoC) is scheduled to announce its latest monetary policy update at 14:00 GMT this Wednesday and is widely expected to leave benchmark interest rates unchanged at 1.75% at the conclusion of its July policy meeting. Hence, the key focus will be on the tone in the accompanying policy statement and updated economic projections (the Monetary Policy Report). This will be followed by the post-meeting press conference, which should provide some meaningful directional impetus to the Canadian Dollar.

Meanwhile, analysts at ING expect the BoC to reiterate its "accommodative" stance on monetary policy - stressing a data-dependent approach, and explained - “In the aftermath of the meeting, the USD/CAD reaction may be broadly muted, as markets seem to have already priced in most of the positives for the loonie. We continue to expect policy rates to remain untouched over the next 18 months and believe that CAD will stay supported despite possibly facing kick-back from re-escalating trade tensions. Accordingly, we stick to our current USD/CAD forecasts at 1.30 for 4Q19 and 1.28 for 1Q20.”

How could it affect USD/CAD?

Ahead of the key event risk, the USD/CAD pair was seen oscillating in a narrow trading band below mid-1.3100s. Apart from any unexpected surprises, the market reaction to the announcement is likely to remain muted and overshadowed by the Fed Chair Jerome Powell's congressional testimony. Should the BoC strike a more cautious tone, though seems unlikely, the pair is likely to build on its recent recovery move from multi-month lows and climb further towards reclaiming the 1.3200 round figure mark. 

On the flip side, any hawkish signals should be enough to provide a goodish lift to the Canadian Dollar and resumption of the pair's prior bearish trajectory. Initial support is pegged near the 1.3100 handle, which if broken might turn the pair vulnerable to head back towards testing the 1.3050-40 support before eventually dropping to test the key 1.30 psychological mark.

Key Notes

   •  Bank of Canada Rate Preview: If it isn't broke don't fix it

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   •  USD/CAD consolidates in a range, awaits Wednesday’s key events

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.