Baxia Markets
July 15, 2021

Important Decision For The Canadians

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Today we have a round of important releases coming from the Bank of Canada that can move the Canadian Dollar in one way or another in the markets. The three anticipated events are; the Bank of Canada Rate Statement, the Bank of Canada Press Conference, and the Overnight Rate.


What is it? 


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?


The Interest Rate is expected to stay at 0.25% as the BoC 



Professional Insight


In Canada, economic developments have been broadly in line with the outlook in the April Monetary Policy Report (MPR). Despite the second wave of the virus, first-quarter GDP growth came in at a robust 5.6 percent. While this was lower than the Bank had projected, the underlying details indicate rising confidence and resilient demand. 


Household spending was stronger than expected, while businesses drew down inventories and increased imports more than anticipated. Renewed lockdowns associated with the third wave are dampening economic activity in the second quarter, largely as anticipated.


Recent jobs data show that workers in contact-sensitive sectors have once again been most affected. The employment rate remains well below its pre-pandemic level, with low wage workers, youth and women continuing to bear the brunt of job losses.



What happens if...


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...


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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