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The Bank of Canada (BoC) has announced its latest monetary policy update which occurred early this week.. The BoC is anticipated to maintain status-quo and leave the benchmark interest rate unchanged at 0.25% at the conclusion of the January policy meeting.
That said, there have been speculations about the possibility of a ‘micro rate cut’ amid stricter COVID-19 restrictions.
Meanwhile, Joseph Trevisani, FXStreet’s own analyst explains: “There has been some media speculation that the Bank of Canada (BoC) might reduce its base rate by an amount less than the standard 0.25%, a so-called micro-cut, in light of the growing drag of the pandemic on performance in 2021. But with analyst expectations nearly uniform for a status quo meeting, that seems unlikely.”
Hence, the key focus will be on the accompanying statement and the post-meeting press conference, where market participants will be looking for any shift in the monetary policy outlook.
The expected status quo rate decision is unlikely to have any major effect on the USD/CAD pair. However, should the BoC deliver a rate cut or signal one, there is a scope for the Canadian dollar to suffer significant losses.
Ahead of the key event risk, the pair was seen hovering near three-day lows, around the 1.2700 mark. A dovish tilt might be enough to prompt some aggressive short-covering move, which, in turn, might push the pair back towards the 1.2800 mark. Subsequent strength will mark a near-term bullish breakout through a two-month-old descending trend-line resistance and pave the way for additional gains.
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.
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