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By: Daniel Gant
March 4th 2014 7:14pm GMT, London UK
 

Tomorrow: (Wednesday March 5) 14.00 GMT: Canadian Interest Rate Decision

What did the BOC say in their January statement?

Although the BOC kept their target rate at 1.00% as expected, traders were a bit surprised to hear downbeat remarks from BOC Governor Stephen Poloz. At that time, he pointed out that inflation has been much weaker than expected and that the annual CPI won’t reach the central bank’s 2% target until 2016.

In addition, policy makers expressed their concerns about the slowdown in the Canadian housing market. They also mentioned that trade and employment figures have been disappointing so far, reducing the likelihood of an interest rate hike in the foreseeable future.

How did USD/CAD react?

With a whopping 150-pip rally, that’s how! As you can see from the 1-hour chart below, the pair was stuck in tight consolidation around 1.1000 prior to the actual monetary policy announcement then it skyrocketed to the 1.1150 minor psychological level hours after the event.

usdcad

January BOC rate decision: USD/CAD 1-hour Forex Chart

What is expected for their March decision?

During the G20 Summit a few days back, Poloz remarked that inflation is starting to pick up in Canada, making the central bank “a little more comfortable” compared to their uneasy outlook earlier this year. Aside from keeping interest rates unchanged at 1.00% for the umpteenth time, BOC policymakers are expected to be a little less dovish with their economic assessment in their March statement.

Bear in mind that Canada also boasted of a 2.9% GDP growth figure for Q4 2013, higher than the previous 2.7% growth figure, despite printing a deeper monthly economic contraction for December. The upward pressure on black crack prices, sparked by the conflict in Ukraine and Russia’s threats to restrict oil supply, could keep the Loonie supported.

 

Tips and tricks

Judging by the small improvements in Canadian economic data, there could be a chance that the BOC would sound relatively hawkish once more. If that’s the case, USD/CAD could carry on with its drop, after a failed test of the 1.1200 major psychological resistance last month.

USD/CAD tends to consolidate hours before the actual event so it might also be a good idea to come up with a straddle setup if you don’t have a strong bias in either direction. If you’re a little more cautious, you can opt to wait for the release candle then ride the direction of the move until the next psychological level for a quick scalp trade.

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Daniel Gant
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Daniel Gant

Broker at GOptions
My strategies have been maintained and reworked for the last four years. Win loss accuracy and a stable method of volume production has insured my clients inside my personal portfolio success, not to mention the education, guides and management sessions that I teach daily.

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