BOC Monetary Policy Preview

Today Bank of Canada (BOC) is to provide further guidance in policy meet. Result to be announced at 14:00 GMT, followed by press conference at 15:15 GMT.
Current policy measures-

• BOC is maintaining overnight deposit rate at 0.75%

Core objective of BOC monetary policy is price stability which means keeping inflation within range of 1-3%. Headline inflation has fallen close to 1% from 2.5% in 2014.
Economy at a glance-

• Canada is small economy of $1.8 trillion approximately, compared to its larger neighbor US.
• GDP growth still remains robust, growing 2.06% y/y as of latest data. However growth rate has slowed from early 2014.
• Lower oil price and commodities remain a major concern for the economy. However economy is likely to benefit from improvement in US economy by 2016.
• Unemployment rate is now hovering at 6.8%, still away from pre-crisis level of 6%.
• Inflation remains subdued at 0.9%, dropped from 2.4% in 2014. However, core inflation still remains strong enough above 2%.

What to watch out for -
Median expectation is that BOC will keep policy unchanged, however a rate cut possibility can't be wiped out entirely, given the weakness in economy.
Even if the bank doesn't provide a rate cut today, it might use communication tool to weaken the Loonie.
What changes in communication would be vital to watch for -

• Changes in inflation expectation ahead. Higher or stable expectation would indicate a rate pause by the bank, which would provide support to Canadian dollar.
  
• Outlook for oil price and impact on the economy.
  
• Changes in growth forecast ahead.

Impact -
Given the weakness in Canadian economy and oil price, expectations for further rate cut has been building in for quite some time now, so reaction could be volatile.
Dovish outlook may prompt to USD/CAD to test resistance around 1.28 area and break above eventually.
Canadian dollar is currently trading against USD at 1.274.
Key support is at 1.26-1.263 and 1.25 area and resistance at 1.28-1.284.

Source : FX-Primus

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