USD/CAD trades sideways as BoC policy takes centre stage

USD/CAD consolidates as investors await BoC’s policy decision, which will be announced on Wednesday.
The BoC is expected to cut interest rates by 50 bps to 3.75%.
The uncertainty over US presidential elections keeps market sentiment jittery.

The USD/CAD pair consolidates in a tight range above the round-level support of 1.3800 in Tuesday’s European session. The Loonie pair trades back and forth, with investors focusing on the Bank of Canada’s (BoC) interest rate decision, which will be announced on Wednesday.

The BoC is expected to reduce its key borrowing rates by 50 basis points (bps) to 3.75%. This would be the fourth straight interest rate cut by BoC in a row. However, the rate-cut size will be larger than usual due to consistently rising jobless rate and slowing inflationary pressures. In September, the Canadian Unemployment Rate decelerated to 6.5% from 6.6% in August but is still higher than 5%, which is often considered a full employment level.

The Canadian economy needs fresh stimulus to boost overall spending and employment levels, which makes more rate cuts as appropriate. Meanwhile, a tight competition between former US President Donald Trump and current Vice President Kamala Harris for presidential elections, which are two weeks away has also kept the Canadian Dollar (CAD) on tenterhooks. The victory of Trump would result in higher import tariffs, which would undermine the currencies of the United States’s (US) trading partners, such as Canada.

Meanwhile, a firm US Dollar (USD) has failed to strengthen the Loonie pair. The US Dollar’s outlook is upbeat as investors expect a gradual rate-cut cycle from the Federal Reserve (Fed) in the remainder of the year. According to the CME FedWatch tool, the Fed is expected to cut interest rates by 25 basis points (bps) in November and December. On the economic front, investors will pay close attention to the flash S&P Global PMI data for October, which will be published on Thursday.

(This story was corrected on October 22 at 13:15 GMT to say, in the last paragraph, that a firm US Dollar has failed to strengthen the Loonie pair, not that a firm US Dollar has also weighed on the Loonie pair.)

Economic Indicator

BoC Interest Rate Decision

The Bank of Canada (BoC) announces its interest rate decision at the end of its eight scheduled meetings per year. If the BoC believes inflation will be above target (hawkish), it will raise interest rates in order to bring it down. This is bullish for the CAD since higher interest rates attract greater inflows of foreign capital. Likewise, if the BoC sees inflation falling below target (dovish) it will lower interest rates in order to give the Canadian economy a boost in the hope inflation will rise back up. This is bearish for CAD since it detracts from foreign capital flowing into the country.

Next release: Wed Oct 23, 2024 13:45

Frequency: Irregular

Consensus: 3.75%

Previous: 4.25%

Source: Bank of Canada

Share: Feed news

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.