Later in the day, the Bank of Canada (BoC) will announce its policy decisions. What is likely to be decisive for the Loonie is how hawkish the market will perceive the BoC to be and above all whether the rate cut expectations for late 2023 will be lowered, according to Elisabeth Andreae, FX Analyst at Commerzbank.
How hawkish will the Bank of Canada seem today?
“CAD is likely to receive short-term support if the BoC surprises with a larger rate step of 50 bps. That is not our main scenario but does not seem impossible in view of the robust economy and the stubbornly high core inflation rate.”
“A 25 bps rate hike, as generally expected, and a hawkish rate outlook are likely to support the Loonie at best.”
“If the BoC were to signal that it will take a break after the latest rate step the market is likely to interpret that as the end of the current rate hike cycle. This is likely to put a brake on rate fantasies and as a result, put pressure on the Loonie.”