Today we have the Bank of Canada’s rate decision and the market expectations are that the BoC will cut rates by 25bps. Prior to yesterday’s surprise rate cut by the Federal Reserve of 50bps the chances of a rate cut where, according to the BAX rate expectations, around 30%. They now stand at 60% with 40% odds of another rate cut for June.
The main question for the rate meeting today at 15:00GMT is whether the BoC cuts by 25 or 50bps. Here is what to expect:
- The biggest sell-off in CAD will come if the BoC cut interest rates by 50bps vs the 25bps expected. In this case, expect AUDCAD buyers at market and pullbacks as long as the risk tone is not negative.
- If the BoC cuts by 25 bps, but holds back from a 50bps rate cut, then the market will focus on whether the BoC is opening the door to further cuts down the line.
- If the BoC cuts rates by 25bps, but it is more a ‘one and done’ type of cut this will be hawkish.
- If the BoC does not cut rates at all then expect CAD strength and look for USDCAD sellers at market and at pullbacks.
Other factors to consider
Don’t forget that CAD is influenced by oil prices. A fall in oil prices will weaken CAD and vice versa, so you will need to keep oil prices in mind which are being influenced by both the risk tone and the OPEC meeting due tomorrow in Vienna.