by
- The Bank of Canada will announce its financial decision today, with analysts pricing in a 75 basis point rate increase.
- Today’s decision could affect the USD.
- Hawkish comments do not imply a strengthened CAD with everything depending on what the market expects.
Today’s interest rate decision by the Bank of Canada highlights the coming North America sessions. Meanwhile, markets expect another 75 basis point hike, as BoC was among the initial central banks to resort to financial tightening following the COVID pandemic’s stimulus.
Such a hike from the Bank of Canada would send the policy rate to 3.25%. Though well beyond the likes of the Eurozone, where the primary interest rate stands at 0, it remains beneath Canada’s total CPI inflation. Here’s what you might expect from BoC’s interest rate move today.
- Policy rates to hit 3.25%
- Hawkish oratory from the bank
- The BoC creates a path for the Federal decision
A 75bp Hike from BoC
The market expects a 75 basis point hike, as the higher USD-CAD exchange rate reflects. Delivering the anticipated hike would see the Bank of Canada moving close to its goal of safeguarding the value of cash by ensuring low and stable inflation. Trust remains paramount for a bank.
The Bank of Canada follows the Federal’s policy amid efforts to combat the soaring inflation. Thus, a 75 basis point hike will highlight Fed’s possible move during the next meeting. Meanwhile, the Fed has all reasons to keep tightening.
Can BoC Frontload Rates?
Increased inflation means a concern in COVID-19’s aftermath. That had central banks such as BoC resorting to frontloading rates. The Bank of Canada surprised market players with a 100bp hike in July, confirming more rate increases in the future.
Nevertheless, the bank will unlikely frontload during today’s meeting. One reason behind that is that Q2 GDP emerged below expectations.
The BoC-Fed Synchronicity
Comparing the Federal and Bank of Canada’s financial policy actions over the past years reveal a fascinating trend – the central banks have moved in tandem. Thus, the Federal will likely execute a 75bp funds rate hike in September if BoC meets today’s expectations. Meanwhile, expect hawkishness from today’s Bank of Canada statement.
