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Negotiate the Bank of Canada meeting


BdC

One of the best trading opportunities this week in the forex markets may well come from the BoC meeting today. The CAD has been well supported recently on three main factors. First, the rise in oil. The buoyant oil market raised all the petro-currencies (CAD, NOK & RUB). Second, Canada’s excellent policy of having employers keep their employees on the payroll means Canada has been one of the fastest countries to show a labor market recovery. Third, rising inflation has all raised expectations for action from the BoC today.

The base case

The baseline scenario is for the BoC to reduce QE from C $ 2 billion per week to C $ 1 billion per week. It’s pretty much expected. However, looking at the yield curve shows that the front end is up sharply. The front end of the curve often moves higher on monetary policy expectations and the OiS curve indicates increases for the BoC by the second half of 2022. Remember that at the last meeting the BoC did kept the rates at 0.25% and they see the rates go up. towards the second half of 2022.

Business prospects

If the BoC fails to announce a QE cut and keep the rate projections unchanged, expect CAD weakness. The increase in NZDCAD could be good or that of AUDCAD.

If the BoC surprises markets with an early end of QE and revises rate projections through the first half of 2022, expect CAD strength. The rise of the CADJPY or the sell of the GBPCAD could be good as the SONIA futures contracts look very tight on the upside,


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