- The Bank of Canada plans to raise rates by 25 basis points, from 4.25% to 4.50%.
- The BoC could signal the end of its tightening cycle on Wednesday.
- The fate of the Canadian dollar depended on the language used in the statement and by Governor McCallum.
A year ago, the Bank of Canada (BoC) took the lead in starting a tightening cycle among the world’s major central banks, and in 2023, the BoC is likely to be the first to halt rate hikes. ,
Economists expect the central bank of Canada increase 25 basis points (BP) when it ends its January policy meeting at 15:00 GMT this Wednesday, Raising the official rate from 4.25% to 4.50% What could be his last phase of hardening.
In December, the central bank raised rates by another 50 basis points to 4.25%, marking the fastest pace of increase since inflation targeting was introduced in the 1990s. However, the language used in Monetary Policy Report (MPI) steers clear of hawkish language, Bank of Canada said Will “study” if necessary Raise rates to balance supply and demand and bring inflation back to its target.
Canada’s December Consumer Price Index (CPI) report showed that The country’s annual inflation rate fell to 6.3% over the previous yearAfter a 6.8% gain in November. The Bank of Canada’s preferred measure of core inflation averaged 5.6% in December, down from 5.8% the previous month. Significantly, in June, Canada’s inflation was at its peak.
Earlier this month, Statistics Canada reported that the Canadian economy created 104,000 jobs in December, while Unemployment rate fell to 5.0%compared to 5.1% in November. Average hourly wages rose 5.1% annually, marking the seventh consecutive month of wage increases, but still haven’t kept pace with inflation. This means that the tight Canadian labor market has not been able to raise wages, which in turn has had a negative effect on consumer demand.
that’s why, Stagnation in BoC’s rate hike path may support economyEspecially after a Business Outlook survey released by the central bank last week showed that “more than 70% of Canadian consumers and two-thirds of businesses believe a recession is likely over the next 12 months.”
but, Is it too early to do this? Inflation remains above the 2.0% target set by the central bank. In light of this, the Bank of Canada’s monetary policy report, along with the interest rate decision, will be important as it will provide new economic forecasts. Governor’s press conference tiff mcallumAt 16:00 GMT, it will be closely watched for the future monetary policy direction of the central bank.
McCallum warned in December that “If inflation persists, much higher interest rates will be needed to restore price stability“, adding that The “biggest risk” is not raising interest rates enough, rather than raising them too much.,
USD/CAD Likely Scenario
USD/CAD Daily Chart
usd/cad Trading on thin ice ahead of showdown with Bank of Canada, test of key daily support line nears 1.3335… … USD/CAD May bounce back strongly from that demand zone with Bank of Canada rate hike announcement as expectedBecause the Canadian dollar may face “fact selling” trade flows.
Bank of Canada gives clear signal about pause in its tightening cycleCorrective decline in Canadian dollar could consolidate, pushing USD/CAD back towards lower-sloping 21-day moving average 1.3470,
Does the language in the monetary policy report and McCallum’s comments leave the door open for further rate hikesThe USD/CAD pair could break important support, with a new downtrend making its way towards the 200-day SMA, currently 1.3197,
Note that the Bank of Canada has a tendency to surprise the markets, and so investors will trade USD/CAD with caution, as any jerky reactions to monetary policy announcements may soon be reversed.
The central bank drives forward expectations The futures swap means the market is betting an interest rate hike of 25 basis points in the new year before the bank changes direction and has to cut its rate at least once in 2023.