– Bank of Canada (BoC) to Keep Rates on Hold Following Two Consecutive Hikes.

– Will Governor Poloz & Co. Implement Higher Borrowing-Costs in 2018?

Trading the News: Bank of Canada Interest Rate Decision

The Bank of Canada (BoC) interest rate decision may spark a limited market reaction as Governor Stephen Poloz and Co. are widely anticipated to keep the benchmark interest rate at 1.00%, but the accompanying policy statement may ultimately alter the near-term outlook for USD/CAD should the central bank tame expectations for higher borrowing-costs.

Recent comments from Governor Poloz suggests the BoC may adopt a more gradual path in normalizing monetary policy as ‘recent data point clearly to a moderation in the second half of the year,’ and the central bank may largely endorse a wait-and-see approach for 2018 as ‘the story of inflation in Canada over the past few years has been dominated by downside risks.’ In turn, the dollar-loonie exchange rate may stage a more meaningful correction off of the 2017-low (1.2061) especially as an inverse head-and-shoulders formation appears to be taking shape, but the broader shift in USD/CAD behavior may continue to unfold over the coming months as the BoC appears to be on course to implement higher borrowing-costs in the year ahead.

Impact that BoC rate decision has had on USD/CAD during the previous meeting

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

SEP

2017

09/06/2017 14:00:00 GMT

0.75%

1.00%

-174

-181

September 2017 Bank of Canada (BoC) Interest Rate Decision

USD/CAD 10-Minute Chart

The Bank of Canada (BoC) unexpected delivered another 25bp rate-hike in September, with the central bank lifting the benchmark interest rate to 1.00% from 0.75% as ‘recent economic data have been stronger than expected, supporting the Bank’s view that growth in Canada is becoming more broadly-based and self-sustaining.’ Nevertheless, Governor Stephen Poloz and Co. went onto say that ‘future monetary policy decisions are not predetermined and will be guided by incoming economic data and financial market developments’as price growth continues to run below the 2% target. The Canadian dollar staged a meaning rally following the rate-hike, with USD/CAD clearing the 1.2300 handle to end the day at 1.2225.