When is the BoC monetary policy decision and how could it affect USD/CAD?

BoC monetary policy decision - Overview

Wednesday's key highlight will be the latest monetary policy update by the Bank of Canada (BoC), scheduled to be announced at 14:00 GMT. The central bank is widely expected to maintain status-quo and leave benchmark interest rates unchanged at 1.75% when it concludes its May policy meeting later today. Hence, the key focus will be on the tone in the accompanying policy statement and even small changes could trigger some volatility around the Canadian Dollar. 

Analysts at TD Securities write, “We expect the Bank to remain cautious on trade tensions as they await more clarity on US/China relations and reiterate that the economy is unfolding in line with their forecast from April. That said, the Governor's recent media comments on the labour market tilts the balance of risks to a more constructive tone.”

How could it affect USD/CAD?

Ahead of the key event risk, the pair retested April swing highs, around the 1.3520 region, albeit once again failed to sustain at higher levels. Should the BoC again strike a more cautious tone, a fresh bout of short-covering could accelerate the up-move towards the 1.3565-70 region before the pair eventually aims to reclaim the 1.3600 round figure mark.

Alternatively, any hawkish signal - rather less dovish, might provide a temporary boost to the Canadian Dollar and exert some downward pressure on the major. However, any negative reaction seems more likely to be short-lived amid the ongoing slump in Crude Oil price and should find decent support near mid-1.3400s.

Key Notes

   •  Bank of Canada preview: Watching these three factors for the USD/CAD reaction

   •  BoC Preview: Major Banks are forecasting no change in policy today

   •  USD/CAD surges through 1.3500 mark amid declining Oil prices, BoC in focus

About the BoC interest rate decision

BoC Interest Rate Decision is announced by the Bank of Canada. If the BoC is hawkish about the inflationary outlook of the economy and raises the interest rates it is positive, or bullish, for the CAD. Likewise, if the BoC has a dovish view on the Canadian economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish.