Mon, Jul 22, 2024

Bank of Canada’s Interest Rate Decision

USDCAD is moving in Descending channel and market has reached lower high area of the channel

The Bank of Canada is poised to make a significant announcement regarding its interest rates on Wednesday. Market expectations strongly suggest that the central bank will maintain its current key rate. This decision comes on the heels of two consecutive rate-holding announcements, reflecting a growing economic slowdown.

Bank of Canada is poised to make a significant announcement regarding its interest rates

The recent third-quarter GDP report indicated a contraction in the economy, coupled with an increase in the unemployment rate for November. Additionally, Canada has experienced a notable decline in inflation, with the annual rate dropping to 3.1 percent in October. As the economy softens and inflation recedes, economists are keenly observing any signals from the central bank regarding potential interest rate cuts. So far, the Bank of Canada has refrained from discussing rate cuts and instead emphasized its readiness to raise rates if necessary.

Market Expectations and Economic Indicators

The Bank of Canada’s forthcoming interest rate decision is largely expected to maintain the status quo, according to economists and market analysts. Despite this consensus, some experts caution against viewing this week’s communication from Governor Tiff Macklem as a mere formality. Leading economists anticipate that the central bank’s statement on December 6 will reveal insights into its evolving perspective on the economy and inflation.

USDCAD is moving in box pattern and market has reached resistance area of the pattern

USDCAD is moving in box pattern and market has reached resistance area of the pattern

In a speech delivered on November 22, Governor Macklem asserted that higher interest rates have cooled the overheated economy and taken the steam out of inflation. He expressed confidence that the central bank’s actions have been effective in moderating the consumer price index. Nevertheless, he reiterated the bank’s willingness to raise rates should inflation persist.

Economic Conditions and Potential Rate Cuts

Recent economic indicators paint a picture of a softening Canadian economy. The GDP report for the third quarter disclosed a 1.4 percent annualized contraction, reinforcing the notion of an economic slowdown. Furthermore, inflation has decreased from a peak of 8.1 percent in June 2022 to 3.1 percent last month.

GDP report for the third quarter disclosed a 1.4 percent annualized contraction

However, Derek Holt from Scotiabank Economics issued a warning on December 5, suggesting that investors are already anticipating a significant probability of a rate cut at the January 24 meeting.

USDCAD has broken Ascending channel in downside

USDCAD has broken Ascending channel in downside

To avoid sparking widespread expectations of rate cuts in the coming weeks, experts advise the Bank of Canada to adopt a more hawkish messaging approach in its upcoming announcement. A mere passive response could potentially leave the central bank vulnerable to runaway expectations of rate cuts, necessitating a proactive stance to maintain financial stability.


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