Will the Canadian Dollar continue to dominate the U.S. Dollar? Or is it time to slow things down? Today we have a round of important releases coming from the Bank of Canada that can address this question exactly. Even more so, these news releases can move the Canadian Dollar significantly in one way or another in the markets today. The three anticipated events are; the Bank of Canada Rate Statement, the Bank of Canada Press Conference, and the Overnight Rate.
What are they?
The Bank of Canada Rate Statement is essentially a tool that is used by the Bank of Canada to publicize to investors any news regarding monetary policy. Most importantly it includes the decision on interest rates and a review regarding the economic conditions that influenced their decision.
The overnight rate is the interest rate at which banks lend or borrows funds from another bank in the overnight market. In many countries, the overnight rate is the interest rate the central bank sets to target monetary policy. This is the classic definition that holds true for all central banks around the world.
Finally, you have the Bank of Canada Press Conference. Here we look at the factors that affected the most recent interest rate decision, the overall economic outlook, inflation and offer insights into future monetary policy decisions.
What are the expectations for the Bank of Canada overnight rate?
Previously in April 2021, the overnight rate was at 0.25%. The expectation for June 2021 is for the overnight rate to be unchanged at 0.25%. Will that be the case?
Since the last time we heard from the Bank of Canada, things still remain unclear and uncertain. Therefore the chances something out of the ordinary happens is pretty low.
Bank of America says:
"We expect the Bank of Canada (BoC) to remain on hold on 9 June, waiting for the economy to get out of its current rough patch and for inflation to eventually subside. That is, we do not expect the Bank to change either its policy rate or its pace of bond purchases at this time," an analyst at Bank of America notes. "All else unchanged, we believe it will be difficult for this meeting to serve as a catalyst for further CAD strength, as turned out to be the case with the April meeting. With risks skewed toward a less-hawkish message, we see CAD idiosyncratic risks on the day as accordingly being tilted to the downside, as with CA yields," BofA writes.
What happens if...
Do we observe a more hawkish outcome than what was expected? The market will like this situation. The policy will be considered expansionary. When governments get hawkish, it means they want to stimulate markets. The Canadian Dollar will increase in value versus other currencies.
What happens if...
Do we find that the state is more dovish than what was expected? The policy is intended to decrease the monetary expansion to fight inflation. This means markets would be less active than before. So we can assume that the Canadain Dollar will reduce in value versus other currencies.
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