Forex, News, Price Analysis

Should Anyone Buy CAD Ahead of Bank of Canada’s Rate Move?

Briefly-

  • BOC to hike rates as inflation exceeds the target range.
  • CAD to gain against JPY and EUR.
  • Higher oil prices and a steady economy back a sable CAD.

The interest rate decision by the Bank of Canada remains one of the critical financial events for traders in the coming week. The BOC has hiked the rates to 1.5%, joining the most aggressive banks in leading economies amidst the ongoing tightening cycle. But it isn’t enough.

Inflation stays well beyond the BOC’s target of 1 – 3% regardless of the rate increase. Moreover, all inflation indexes, including CPI-common, CPI-median, CPI-trim, and Total CPI, surpass the bank’s upper range, requiring more from the BOC.

Market players expect a 75 basis point rate hike (next Wednesday) from the Federal Reserve. Besides inflation surpassing the BOC’s target, rate increases remain logical due to the massive economic growth plus the Canadian unwavering job market.

The Canadian Currency Emerges Stronger Lately

CAD is among the currencies that strengthened as most central banks started battling inflation. The Canadian dollar mimicked USD surges as the Bank of Canada trailed the Federal’s steps.

That saw CAD gaining against its peers, like the Japanese yen and the euro. It could not gain against the USD, and that’s logical due to the dollar’s strength and the surging oil prices.

Keep in mind that oil prices influence the USD and CAD. As Canada is a leading oil exporter, the oil prices surged from a ‘negative’ region to beyond $100 per barrel meant optimism for CAD. Meanwhile, the US denominates oil. The higher oil costs have strengthened the greenback, whereas all currencies weakened.

A steady currency is a lucrative asset amidst surging services and goods prices. Combined with the bank’s dedication to raising rates, investors can expect further CAD strength against other currencies apart from the USD.

For example, the Canadian dollar could keep rallying against the JPY and the EUR. The Bank of Japan and the European Central Bank remain well behind in the tightening journey, and Wednesday’s rate increase by the BOC would widen the rate differential.

Stay around for developing news in the financial world.

Editorial credit: Rabanser / shutterstock.com

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