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 14:00 GMT this Wednesday. The Canadian central bank is anticipated to leave its benchmark interest rates unchanged at 0.25% and taper its QE program at the conclusion of the April policy meeting. Most analysts are forecasting the central bank to reduce the pace of its weekly government bond purchases by C$1 billion from the current C$4 billion. The monetary policy statement will be accompanied by fresh economic projections and followed by the post-meeting press conference.

How Could it Affect USD/CAD?

The BoC could still disappoint investors and stick to its accommodative monetary policy stance amid the third wave of COVID-19 infections in Canada. As Eren Sengezer, Editor at FXStreet explains: “The BoC could refrain from taking immediate action while providing guidance on QE exit. A dovish tone combined with a cautious outlook could trigger a significant reaction in the CAD.”

Ahead of the key event risk, the ongoing downfall in crude oil prices undermined the commodity-linked loonie and pushed the USD/CAD pair to one-week tops, around the 1.2625-30 supply zone. The uptick was further supported by softer Canadian consumer inflation figures and a modest US dollar strength.

Meanwhile, Eren outlined important technical levels to trade the USD/CAD pair: “If USD/CAD manages to make a daily close above 1.2570/90 area, where the descending trend line, the 20-day SMA and the 50-day SMA form strong resistance, on the back of a dovish BoC surprise, it could target 1.2675 (100-day SMA) and 1.2740 (March 1 high).”

“On the other hand, strong support is located at 1.2500. The pair tested that level in the previous five trading days but failed to make a daily close there. As mentioned above, a clear BoC tightening path and a reduction in current GoC purchases could open the door for additional losses toward 1.2400 (psychological level) and 1.2365 (2-year low set on March 15),” Eren added further.

Key Notes

  •  Bank of Canada Preview: Dovish surprise to lift USD/CAD

  •  USD/CAD Analysis: Bulls await descending channel breakout, focus on BoC decision

  •  USD/CAD: Options market suggests strongest bullish bias in a month, BOC in focus

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.