Bank of Canada is likely to lower its overnight rate by 25bp on Wednesday. The price of Western Canadian Select (WCS) has declined by 50% since the central bank published its Monetary Policy Report in October. The fall has been partly countered by the 8% nominal multilateral depreciation of the CAD.

"We estimate that to offset the effect on GDP of the drop in crude prices fully, the BoC would need to cut policy rates at least 50bp in 2016, says Soceite Generale.

While there is a possibility that the BoC will keep rates unchanged for now, it is expected that the central bank will indicate its dovish stance and hint at additional easing in the following months. The market expects BoC to lower rates by 20bp this week and a cumulative 40bp for the entire 2016. The CAD is likely to depreciate due to the current market pricing and declining oil prices.