BoC policy meeting: It’s time for a rate hike – Forex News Preview
- Christina Parthenidou
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.
免責聲明: XM Group提供線上交易平台的登入和執行服務，允許個人查看和/或使用網站所提供的內容，但不進行任何更改或擴展其服務和訪問權限，並受以下條款與條例約束：（i）條款與條例；（ii）風險提示；（iii）完全免責聲明。網站內部所提供的所有資訊，僅限於一般資訊用途。請注意，我們所有的線上交易平台內容並不構成，也不被視為進入金融市場交易的邀約或邀請 。金融市場交易會對您的投資帶來重大風險。