The Bank of Canada is expected to announce a 0.25% rate hike on Wednesday
Market prices and the consensus among economists pointed to a 25 basis point hike by the Bank of Canada on Wednesday.
The Bank of Canada is expected to raise its interest rate by 25 basis points on Wednesday according to market prices and economists. The hike would see their benchmark rate rise to 4.5% – its highest level since October 2007 – and on par with the Fed but above the RBNZ’s 4.25% rate.
A house with 25 basis points will be the slowest pace after the first house of the cycle in March 2022, after it has moved from 50 basis points, a house with 100 basis points and a house with 75 basis points along the way. The central bank also provides the minutes of the February 8 meeting, which is the first time in its history.
Currency markets suggest an 80% chance of a 25 basis point house, so 25 of 26 economists polled by Reuters (96%) are also pricing in the move. With a 25 basis point rise all but a given, it could take a surprise catch to stir up the will for traders. But then, looking at upcoming business and consumer sentiment surveys, we suggest our beneficiary is rapidly approaching the Bank of Canada’s terminal rate. Traders should therefore also be wary of a possible dovish rise, where the Bank of Canada could hint that they are nearing the end of their cut cycle. And that could mean further weakness for the Canadian dollar.
The Bank of Canada pays close attention to its quarterly business and consumer outlook surveys, and the general trend for both is high inflation concerns weighing on their outlook for the economy. So on that front, rate hikes are doing their job of cooling the economy by depressing demand.
However, with inflation remaining stubbornly high and the trimmed average and median CPI hovering near their multi-decade highs and nearly double the upper end of their 1-3% target range, this leaves the possibility of at least 1 or 2 other houses of 25 million.
Summary of the quarterly BOS (business survey)
- Business confidence continues to weaken.
- 29% of companies have a sales bank.
- Their business intentions to increase investment and hiring continued to decline.
- Rising interest rates are weighing on business prospects.
- Labor cost expectations remain historically high but have fallen for a fifth consecutive month.
- Companies expect a slowdown in the growth of the prices of their inputs and outputs.
- Companies believe that inflation will remain high in judicial terms (0-2 years).
Summary of consumer expectations survey
- Consumers have reduced their purchases of a wide range of goods and services due to inflation and high interest rates.
- Real wages continued to fall and access to credit deteriorated.
- Most consumers expect a slight to moderate reduction in Canada over the next 12 months.
- Two-thirds of those who expect a regression do not think it will be severe.
- Inflation expectations one year ahead remain high at a high level, while actual inflation stabilizes.
GBP/CAD 4 hour chart
With the Bank of England making increasingly hawkish comments and the Bank of Canada likely nearing the end of their cut cycle, the pound has risen over the past two weeks. Yet, prices have also retreated over the past couple of days and we are waiting to see if the cross can hold above support around 1.6445, which includes previous highs, the monthly pivot point and the average. rolling 20-day EMA.
The 4-hour chart is showing a wick lower and a Doji has met the 20 bar EMA moving average, so perhaps prices are trying to bottom out. The bias remains bullish above 1.6400, so bulls could either look to enter around current levels (if confident a lower low is near) or wait to see if prices are turned down at the level. 1.6450 resistance – because look for evidence of a swing low.
It is not possible for the 200 week moving average EMA to lie near 1.6700 and be a likely resistance level. But for now, the bias is for a possible break above, depending on the strength of the uptrend on the overall chart.
By Matt Simpson, FOREX.com » Official Site
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