BoC policy meeting: It’s time for a rate hike – Forex News Preview

The Bank of Canada (BoC) is widely expected to kick off the new year with a rate hike on Wednesday despite its muted communication over the past weeks. With inflation well above the central bank’s target and the labor market running hot, a rate increase could be justified. That said, investors are already positioned for the announcement and the central bank will need to provide extra hawkish signals to cancel the latest pullback in the loonie. The decision will be published at 15:00 GMT.

Canadian inflation could get worse

Investors are fully convinced that the Bank of Canada will be the first major central bank to raise its interest rates by 25 basis points this year, and there is no fundamental excuse to entirely exclude that scenario. The headline CPI inflation unlocked a fresh 30-year high of 4.8% y/y in December, gently higher than the previous reading but still above the central bank’s range target of 1-3%.

While the rapid pickup in food prices was the key driver behind the boost, the core measures, which exclude volatile components, also climbed to a fresh high, flagging that inflation is probably broadly spreading in the economy. On top of that, the Canadian Real Estate Association revealed that house prices rose for the year at a record rate of 26.6% in the same month, while the central bank’s quarterly business-outlook survey indicated last week that companies are thinking to raise wages at a faster pace than during the past year to make up for the labor shortages and maintain the existing workforce. Strikingly, they are also considering passing through to consumers the increased costs of additional investment they are preparing to undertake to meet domestic and foreign demand.

A rate hike is on the map

Hence, given the joint agreement with the government, which renewed the 2.0% midpoint inflation objective for the next four years to 2026 last month, the BoC may need to abandon its stimulus settings sooner than its US counterpart, which has switched to a more flexible average price targeting.

The central bank has already ended its quantitative easing program, and it’s currently in a reinvesting phase in which it buys only the amount of bonds needed to replace the maturing ones.

It has also moved its timetable for its first rate hike forward to April, but since the omicron variant is not threatening additional lockdowns and the economy continues to create new job positions, pressing the unemployment rate to 6.0% as of December, the central bank may not wait that long.

How could the loonie react to the BoC announcement?

Turning to FX markets, the question that arises at this point is how the loonie will react if the BoC listens to market expectations and delivers a rate hike earlier than its forward guidance suggested during the previous meeting. Investors are certain that a rate increase will take place this week. Therefore, the announcement itself may not be surprising, likely doing little to cancel the loonie’s latest pullback against the US dollar, unless the central bank upgrades its economic forecasts and provides further reasoning to speed up its rate hike plans. Note that futures markets foresee six more rate hikes to come till the end of the year. Any statements embracing further monetary tightening in the year ahead could sink dollar/loonie towards the 200-day simple moving average (SMA) at 1.2500, while a deeper decline may reach the former 1.2430 support region.

On the other hand, the BoC tends to follow the Fed’s steps and not the opposite, and that is feeding some doubts about whether policymakers will be patient, waiting for more data evidence in the next few months to confidently support any rate rise.

Should the central bank hold back, disappointing the crowd of investors who are currently betting for higher rates, dollar/loonie could aggressively head towards the key resistance of 1.2700 and then gear up to meet the next barrier at 1.2830. Yet, whether such a rally could be sustained remains to be seen as pandemic-led supply crunches may keep oil prices elevated, overshadowing negative forces in the oil-dependent loonie. The Fed’s policy announcement later on Wednesday could also impact the pair.

Pinakabagong Balita

Week Ahead – Flash PMIs, FOMC minutes to dictate sentiment; RBNZ to hike again

Aussie fires up ahead of jobs data and Australian federal election - Forex News Preview

Japan may shrink, but will the yen follow? – Forex News Preview

Dollar consolidates ahead of US retail sales as rate hike bets stall – Forex News Preview

Disclaimer: Ang mga kabilang sa XM Group ay nagbibigay lang ng serbisyo sa pagpapatupad at pag-access sa aming Online Trading Facility, kung saan pinapahintulutan nito ang pagtingin at/o paggamit sa nilalaman na makikita sa website o sa pamamagitan nito, at walang layuning palitan o palawigin ito, at hindi din ito papalitan o papalawigin. Ang naturang pag-access at paggamit ay palaging alinsunod sa: (i) Mga Tuntunin at Kundisyon; (ii) Mga Babala sa Risk; at (iii) Kabuuang Disclaimer. Kaya naman ang naturang nilalaman ay ituturing na pangkalahatang impormasyon lamang. Mangyaring isaalang-alang na ang mga nilalaman ng aming Online Trading Facility ay hindi paglikom, o alok, para magsagawa ng anumang transaksyon sa mga pinansyal na market. Ang pag-trade sa alinmang pinansyal na market ay nagtataglay ng mataas na lebel ng risk sa iyong kapital.

Lahat ng materyales na nakalathala sa aming Online Trading Facility ay nakalaan para sa layuning edukasyonal/pang-impormasyon lamang at hindi naglalaman – at hindi dapat ituring bilang naglalaman – ng payo at rekomendasyon na pangpinansyal, tungkol sa buwis sa pag-i-invest, o pang-trade, o tala ng aming presyo sa pag-trade, o alok para sa, o paglikom ng, transaksyon sa alinmang pinansyal na instrument o hindi ginustong pinansyal na promosyon.

Sa anumang nilalaman na galing sa ikatlong partido, pati na ang mga nilalaman na inihanda ng XM, ang mga naturang opinyon, balita, pananaliksik, pag-analisa, presyo, ibang impormasyon o link sa ibang mga site na makikita sa website na ito ay ibibigay tulad ng nandoon, bilang pangkalahatang komentaryo sa market at hindi ito nagtataglay ng payo sa pag-i-invest. Kung ang alinmang nilalaman nito ay itinuring bilang pananaliksik sa pag-i-invest, kailangan mong isaalang-alang at tanggapin na hindi ito inilaan at inihanda alinsunod sa mga legal na pangangailangan na idinisenyo para maisulong ang pagsasarili ng pananaliksik sa pag-i-invest, at dahil dito ituturing ito na komunikasyon sa marketing sa ilalim ng mga kaugnay na batas at regulasyon. Mangyaring siguruhin na nabasa at naintindihan mo ang aming Notipikasyon sa Hindi Independyenteng Pananaliksik sa Pag-i-invest at Babala sa Risk na may kinalaman sa impormasyong nakalagay sa itaas, na maa-access dito.

Gumagamit kami ng cookies para mabigyan ka ng mahusay na karanasan sa aming website. Magbasa pa o palitan ang iyong cookie settings.

Babala sa Risk: Maaaring malugi ang iyong kapital. Maaaring hindi nababagay sa lahat ang mga produktong naka-leverage. Mangyaring isaalang-alang ang aming Pahayag sa Risk.