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#1 08-09-2020 10:07:40

johnedward
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From: Paris - France
Registered: 21-12-2009
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USD/CAD: a preview of tomorrow's rate decision by the Bank of Canada

USD/CAD: a preview of tomorrow's interest rate decision by the Bank of Canada


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One of the forex's most anticipated events is a central bank's interest rate decision. It is the level of the interest rate that moves a currency, and traders always position themselves well in advance of the actual interest rate announcement.

To do this, they collect and interpret the data published between two interest rate announcements. The goal is to get a clear idea of what the central bank might do when it meets to review economic results.

The Bank of Canada's interest rate decision tomorrow is being closely monitored by traders everywhere. It is expected to keep the interest rate at 0.25% near the zero bound. Like many major central banks, the Bank of Canada lowered the interest rate close to zero during the virus situation in order to stimulate the economy during these uncertain and difficult times.

Things to consider before the Bank of Canada's interest rate decision

Friday was NFP Day. As is customary, Canadian employment data came out at the same time, making it difficult to trade the USD/CAD pair.

Canada's unemployment rate remains above 10% (10.2%), though down slightly from 10.8% in August. The Canadian economy created more than 250,000 jobs, continuing the positive trend that began a few months earlier. However, it should be kept in mind that the data is skewed due to government support during the virus situation, as both temporary and permanent unemployment are still difficult to measure.

The trade balance, which shows the difference between imported and exported goods during the month, decreased further to CAD $2.49 billion. Labour productivity for the last quarter declined surprisingly, reaching almost 10 per cent compared to a forecast of 6.4 per cent - another figure likely distorted by the virus situation.

This makes it difficult for the Bank of Canada to interpret the data correctly before announcing the interest rate decision. This week's focus will be on the size of the stimulus and whether the Bank of Canada considers it appropriate to increase the balance sheet more quickly.

There are rumours in the market that the Fed is preparing to further expand its quantitative easing program, with a possible announcement at its next meeting. If this is the case, the Bank of Canada will not be left behind as it is known to follow in the Fed's footsteps.

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