Tomorrow at 2:00 pm GMT the Bank of Canada (BOC) will publish its monetary policy decision for the month of September.
Will the central bank join the stimulus bandwagon and stimulate the Canadian economy some more? Here are three things you need to know before you trade the report!
The last policy decision was in July
While central banks like the BOJ, ECB, RBA, and BOE were busy hinting at and implementing more monetary stimulus, Stephen Poloz and his gang bucked the trend and surprisingly left their interest rates steady at 0.50%. That leaves the rate unchanged since July 2015!
The BOC wasn’t all flowers and rainbows over the economy though. For starters, it DOWNGRADED its global and domestic growth forecasts, citing the big, bad Brexit, expected slowdown in China’s economy, and Alberta’s wildfires affecting economic activity.
Luckily, it also upgraded its inflation forecasts, pointing to the impact of higher oil prices and the Loonie’s previous depreciation. Overall the BOC members believe that risks remain balanced, enough for them to keep their policies unchanged for another month.
CAD tends to sustain its post-BOC statement trends
At least until the next U.S. trading session. A look at the last two releases tells us at least two things. First, the BOC’s last two statements came in less dovish than many had expected. This is probably why we’re seeing relief Loonie rallies at the releases. Next, the Loonie’s reactions to the statements seem to last until the next U.S. trading session.
Take May’s statement, for example. Back then the mixed nature of Canada’s data made it difficult to predict the BOC’s decision, which made the central bank’s not-so-dovish tone even more bullish for the Loonie. CAD pairs popped higher and didn’t take any breaths until the next U.S. session.
July’s statement was no different. Thanks to other central banks hinting at more easing, the BOC’s less-dovish-than-expected statement provided relief for forex bulls. The Loonie ended up rising across the board and MAINTAINING its gains until near the end of the week.
BOC isn’t likely to make any changes this month
This doesn’t mean that the central bank won’t take the opportunity to express its concerns over the less-than-stellar economic data points though. If you’ve read our Canadian economic snapshot, then you’ll know that Canada’s recent economic reports don’t really show anything that the BOC hasn’t anticipated in its July estimates.
But with the housing market cooling somewhat, inflation numbers inching closer to the bottom of the BOC’s 1% – 3% target range, labor market conditions deteriorating, and oil prices now a bit lower than their estimates back in July, the BOC now has room (and cause) to be more dovish and even hint at further easing down the road.
Based on what we know from above, we can assume that the BOC isn’t likely to make any changes to its monetary policies. However, its statement could be more dovish than its previous releases and even hint at further easing down the road. If that happens, then we can expect the Loonie to trade lower against most of its counterparts.
But if the BOC decides to keep calm and carry on, then we might see further Loonie gains across the board. Oh, and keep an eye out for any oil-related news updates, as significant news on the Black Crack could override any not-so-significant announcement from the central bank!
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