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 15:00 GMT this Wednesday. The BoC is widely expected to cut its benchmark interest rates by 25 bps to 1.50% from 1.75% at the conclusion of the March policy meeting. However, some investors anticipate the central bank to deliver a larger cut of 50 bps, in line with the Fed's surprise move on Tuesday. This coupled with the tome in the accompanying policy statement and the post-meeting press conference should drive the near-term sentiment surrounding the Canadian dollar.

As analysts at the National Bank of Canada explained: “Fed’s decision opens the door to a more aggressive move by the Bank of Canada. We now see the BoC matching the Fed, opting for a 50 bp cut on Wednesday – monetary policy relief that comes despite the fact that Trudeau/Morneau appear ready to marshal fiscal policy in support of the Canadian economy.”

How could it affect USD/CAD?

A dovish cut of 25bps by the BoC might be enough to trigger some meaningful weakness in the domestic currency and assist the USD/CAD pair to regain positive traction. Should the Canadian central bank refrain from cutting rates, though it seems highly unlikely given the uncertainty over the economic impact of the deadly coronavirus, the pair is likely to witness some aggressive long-unwinding trade and extend its recent sharp pullback from nine-month tops set last Friday.

Key Notes

   •  BOC Preview: Buy the coronavirus cut rumor, sell USD/CAD on the fact? Five scenarios

   •  USD/CAD trades with modest losses just above mid-1.3300s, focus remains on BoC

   •  USD/CAD Price Analysis: Holds above 200-hour SMA pivotal point ahead of BoC

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.