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Interest rates expected to go down soon everywhere

Economic Events Outlook, March 6 – How to Trade BOC Monetary Policy Decision?

Posted Wednesday, March 6, 2019 by
Arslan Butt • 2 min read

We’re in the middle of the week and so far the market has remained in flux due to the absence of top tier economic events on Monday and Tuesday. Well, the boring part of the market is over now as we have some market moving economic events on the docket today.

Today’s main events are the monetary policy decision from the Bank of Canada, crude oil inventories and ADP Nonfarm employment change figure from the United States. Let’s take a quick look at the events before we begin our trading day.

Watchlist – Top Economic Events Today

CAD – Trade Balance

At 1:30 (GMT), the Australian Bureau of Statistics is due to release the trade balance. It’s a difference in value between imported and exported goods and services during the reported month. As you know, Canada is heavily dependent on its exports, so a trade surplus can boost Loonies demand. The trade balance is expected to be -2.4B vs. -2.1B, which isn’t good for Loonie.

USD – Crude Oil Inventories

The EIA (Energy Information Administration) is due to report on the WTI oil stockpile data. Last time, the inventories fell by -8.6M, perhaps on the US-China trade deal sentiments.

Since the United States has already pushed the trade deal deadline and both nations are expected to meet at the March 27 summit, the sentiment for oil prices remains solid. We may see another draw in crude oil inventories this week.

CAD – Monetary Policy Report

The BOC has been one of the few central banks amongst liberal economies (apart from US Federal Reserve) that’s been able to raise interest rates despite the crises and trade war. The Bank of Canada has increased rates four times since 2017 and three times in 2018. However, it’s expected to keep the interest rate unchanged at 1.75% today.

What are the chances of a rate hike?
Economists are very optimistic about an additional rate hike from the Canadian economy this year, It’s mostly due to the successful conclusion to the NAFTA renegotiation between the US and Canada.
But lately, the drop in crude oil prices has caused damage to the Canadian economy. Let me remind you, crude oil exports play a major role in the revenue of the Canadian economy.

Secondly, the Canadian economy exports around 70% of its crude oil to the US. This is why the Bank of Canada has to maintain a balance in the exchange rate. Since Federal Reserve isn’t expected to hike interest rates in the near future, the BOC is likely to follow in the footsteps of its ally.

What happens when BOC HIKES the Interest Rate?
So far, the Canadian dollar has remained weaker against the US dollar as the market is expecting no rate hike from the Bank of Canada. However, if BOC surprises the market with 25 base points rate hike, we may see a sharp buying in the Loonie. It means we should look for a selling opportunity in the USD/CAD.

On the contrary, no change in the rate may trigger further buying in the USD/CAD pair.

What happens if BOC Hikes the Interest Rate?
It’s the least possible thing the market is expecting right now. So we may see a dramatic selling in USD/CAD for at least 100 -200 pips in the first five minutes of the news release. So, be ready for the opportunity.

Good luck and stay tuned to FX Leaders for trading signals.

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