Bank of Canada is set to announce its next monetary policy decision tomorrow at 3:00 pm GMT. It is expected that BoC will keep interest rates unchanged at 5.00% for the third meeting in a row. Let's take a quick look at what are markets pricing, Canadian data since last BoC meeting and how USDCAD chart looks like.
Markets expect no change in rates
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Economists surveyed by Bloomberg and Reuters expect Canadian central bank to keep rates unchanged, with the main interest rate staying at 5.00% for the third meeting in a row. Such is also view of the money markets with overnight index swaps pricing in a 5% chance of BoC delivering a 25 basis point rate cut at this week's meeting. Markets fully price in the first 25 basis point rate cut for April 2024, with 100 basis points of cumulative easing being priced in for the full-2024.
Money markets are not expecting more BoC rate hikes, with the first cut being fully priced in for April 2024. Source: Bloomberg Finance LP, XTB
Is there a chance for a surprise?
Expectations are clear - Bank of Canada will refrain from making a rate move tomorrow. However, is there a chance for a surprise? When it comes to rates, surprise looks highly unlikely - cut looks unlikely as inflation remains above BoC target and hike also looks unlikely given that already-delivered massive tightening is taking a toll on Canadian citizens. Having said that, any surprise would likely come from narrative.
Data from Canadian economy released since the last BoC meeting has been mixed. Solid housing starts data for October as well as strong jobs data for November show that the economy could weather another hike. On the other hand, lackluster Q3 GDP report as well as bigger-than-expected slowdown in October's CPI give some arguments to BoC doves. Having said that, the most likely outcome of tomorrow's meeting seems to be no change in the level of rates as well as maintaining current wait-and-see narrative.
A look at USDCAD chart
Taking a look at USDCAD chart at D1 interval, we can see that the pair has been pulling back recently. Pair tested the 1.3500 support zone, marked with previous price reactions, 200-session moving average (purple line) as well as 50% retracement of the upward move launched in mid-July 2023, but failed to break below. USDCAD recovered some of recent declines this week but and is now testing the 1.3580 resistance zone marked with 38.2% retracement. A failure to break above this zone may hint that ongoing gains are just an upward correction, and that the pair may be about to resume downward move.
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