USD/CAD rallies ahead of potential BOC micro-rate cut

Written by: Crispus Nyaga
January 18, 2021
  • The USD/CAD pair has rallied ahead of the BOC interest rate decision.
  • Some analysts expect the bank to deliver a micro-rate cut.
  • That's because the BOC has already said it won't implement negative rates

The USD/CAD is up for the second straight day ahead of the important Bank of Canada (BOC) interest rate decision. The Canadian dollar is trading at 1.2780, which is 1.25% above last week’s low of 1.2626.

USD/CAD
USD/CAD has risen ahead of BOC decision

Bank of Canada interest rate decision

The BOC will start its first rate decision tomorrow and deliver its rate decision on Wednesday at 13:30 GMT. 

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The decision comes at a mixed time for the Canadian economy. On the one hand, the rising crude oil prices have helped boost the recovery. It has also helped push the Canadian dollar to the highest level since May 2018. The currency has risen by more than 12% since March last year, presenting more challenges to exporters. 

However, the number of coronavirus cases have continued rising, putting the recovery at risk. Indeed, early this year, data from Canada showed that the economy lost more than 62,000 jobs in December.

Therefore, it is against this backdrop that some analysts are predicting a “micro rate cut” this week. Since the bank has ruled out pushing rates to the negative zone, the analysts believe that it will have a less than 25 basis points cut. Indeed, this expectation is being seen in the overnight index swap market, which has dropped below 0.2%. 

If it cuts, the BOC will be the only major central bank to do so in the recent past. The European Central Bank (ECB), Federal Reserve, and the Reserve Bank of Australia (RBA) have left rates unchanged in the past few months.

The USD/CAD will possibly fall if the BOC cuts rates this week. That’s because of the buy the rumour, sell the news aspect. Alternatively, it will likely rise if it leaves rates intact.

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USD/CAD technical outlook

USD/CAD
USD/CAD technical chart

The USD/CAD has been rising in the past few days. On the daily chart, the price is slightly below the important resistance at 1.2990. It is also below the previous descending triangle pattern. The pair has also moved above the middle line of the Bollinger bands.

Therefore, this week, the movement of the Canadian dollar will depend on the BOC. A micro-rate cut will possibly see it resume the downward trend and retest the YTD low of 1.2623. However, status quo will likely see it continue the upward trend. You can trade the two alternatives using a good forex spread betting broker.