Bank of Canada interest rate: Cad in focus

Keynotes;

• BoC set to announce its interest rate
• The Canadian dollar will be eyeing for direction
• Technical outlook

What we can expect from Bank of Canada?

The Bank of Canada is set to announce its rate decision on Wednesday and investors already expect the BoC to stay unchanged. However, economists still believe that the bank will hike the rate before the end of next year. Investors will be looking to see what the bank has to say about the economy.

The Bank of Canada stated that it will keep its trending interest rates near zero until the economy is ready to respond to interest rate increases, which is not expected to happen before the second half of 2022.

The Bank of Canada continued its stimulus reduction measures in July, reducing its quantitative easing program by 1 billion Canadian dollars, bringing its asset purchases to 2 billion Canadian dollars per week. However, since then, the situation in Canada has deteriorated in two ways: political stability has changed before the federal election on September 20, and the rising COVID19 infection has weakened the momentum of economic growth.

This combination has cured an environment that indicates that the Bank of Canada will remain cautious at its September policy meeting, thereby reducing the possibility of further reductions in asset purchases in the near future.

The central bank lowered its expectations for economic growth in July this year.

At the time, it stated that it expected the economy to grow 6.0% in 2021, down from the 6.5% previously forecast. However, it has raised its outlook for next year, which is expected to grow 4.6% in 2022, which is higher than the previous forecast of 3.7%.

Technical outlook;

The four-hour chart shows that the USD/CAD has been in an upward trend since Friday last week. The currency pair has successfully risen from last week’s low of 1.2492 to the current high of 1.2630. Along the way, it has moved above the downtrend line shown in black and is also close to the resistance level of 1.27088.

Therefore, the currency pair may continue to rise before the Central Bank of Canada makes a decision.

LULAMA MSUNGWA

Research & Markets Analyst

Scope Markets