USD/CAD sits and waits ahead of the BOC interest rate decision

The USD/CAD pair moved sideways ahead of the latest Bank of Canada (BOC) and Federal Reserve interest rate decision. The pair is trading at 1.2600, which is slightly above last week’s low of 1.2462.

Bank of Canada decision

The BOC and the Fed will conclude their two-day monetary policy meetings on Wednesday. Analysts expect that the two central banks will deliver hawkish decisions in a bid to lower inflation in the two countries.

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Recent data showed that the Canadian consumer price index (CPI) has jumped sharply in the past few months while the unemployment rate has moved to below 6%. Therefore, analysts expect that the central bank will start its hiking cycle now that it has already ended its quantitative easing policies. 

Precisely, analysts expect that the BOC will hike interest rates by about 25 basis points and then hint that it will implement at least two more hikes. Analysts at ING bank wrote that:

“Covid containment measures are also set to be eased at the end of the month and this should signal the green light to hike rates. Expect a positive impact on CAD, although external risks are mounting.”

Fed decision

The USD/CAD pair is also reacting to the upcoming Federal Reserve interest rate decision. Analysts expect that the Fed will deliver a relatively hawkish decision. Unlike the Bank of Canada, the Fed will not hike interest rates this week. 

However, the Fed will provide hints that it will implement rates about 3 rate hikes this year. Also, they will end the quantitative policies in March. In a statement on Tuesday, an analyst at Bank of America said;

“The bond market seems to be reacting to the drop in equities, plus the geopolitical tensions, so maybe the Fed sounds not as hawkish as they otherwise would have. But we don’t think the Fed is going to come out and tell the market it’s wrong for pricing in four rate hikes this year.”