Forex, News, Price Analysis

Bank of Canada Might “Out Hike” Fed – Here’s why

  • Awaited 50bp rate increase from BOC today.
  • The bank will likely out hike the U.S Fed.
  • USD/CAD encountered rejection at 1.30.

The Bank of Canada welcomed the initial trading day this month by revealing its monetary policy decision. BOC was among the first banks to alleviate economic stimulus following the COVID19-driven lockdowns, and analysts expect BOC to increase interest rates.

Canada’s interest rate stands at 1%, and the market awaits another 50 basis point hike today. Furthermore, some market players trust that BOC could introduce a 75 basis point hike because inflation surges beyond the central bank’s target.

Here are the reasons why BOC will likely be more hawkish than the United Stated Fed, out hiking it:

  • Canadian job market outshines the U.S
  • A hawkish stance is not a surprise.
  • More interest rate hikes await.

Steady Domestic Job Market

The Canadian job market recovered all jobs lost amid the COVID-19 crisis, adding some more. Moreover, job vacancies surpass one million, intensifying the pressure on wages to increase.

Nevertheless, higher wages translate to higher inflation. Inflation stays well beyond the bank’s target. The steady domestic job market is another reason for the hawkish stance of the Bank of Canada, and potentially introduce massive hikes than markets’ expectations.

Hawkishness Isn’t a Surprise.

It is not the first time BOC surprised market players. Many know this central bank for avoiding shyness as far as surprising investors is concerned. Bank of Canada has exhibited another approach than what markets anticipated. Therefore, the bank might decide on a 75 basis point increase today as the 1% rate remained well under April’s inflation rate of 5.1%.

More Interest Rate Hikes Impending

The Bank of Canada stated that the interest rates remained too simulative, even at 1%. Considering the growth rate and rates need to surpass the inflation rate, and it does not. Therefore, conditions remain stimulations provided growth and interest rates are lower. That means more possible rate increases in the coming months.

USD-CAD Exchange Rate

USD-CAD saw its exchange rate topping at 1.30 in 2022 and still searches for direction. 1.24 remains a crucial level, and closing beneath it clears the patch for a move towards 1.20.

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