BOC monetary policy preview

Today Bank of Canada (BOC) is to provide further guidance in policy meet. Result to be announced at 14:00 GMT, followed by monetary policy report at 15:00 GMT and press conference at 14:15 GMT.

Current policy measures-

• BOC is maintaining overnight deposit rate at 0.75%

Core objective of BOC monetary policy is price stability which means keeping inflation within range of 1-3%. Headline inflation has fallen close to 1% from 2.5% in 2014.

Economy at a glance-

• Canada is small economy of $1.8 trillion approximately, compared to its larger neighbor US.
• GDP growth still remains robust, growing 2.6% y/y as of latest data. However growth rate has slowed from early 2014.
• Lower oil price and commodities remain a concern.
• Unemployment rate is now hovering at 6.8%, still away from pre-crisis level of 6%.

Return of growth in US is expected to help Canadian economy as a whole.

What to watch out for -

BOC is expected to keep policy on hold today and move to wait and watch mode for at least first half of the year.

However changes in communication would be vital to watch for -

• Changes in inflation expectation ahead. Higher or stable expectation would indicate a rate pause by the bank.
  
  
• Outlook for oil price and impact on the economy.
  
  
• Changes in growth forecast ahead.
  
  
• Changes in communication over future. BOC might exert less dovish tone today as inflation seems to stabilize globally and oil price rise.

Impact -

• Canadian dollar is currently trading at 1.2540, down -0.47% today so far.

Neutral monetary policy would keep the current range intact, however a change in dovish tone might prompt the pair to break below the lower bound of the range and appreciate further.

Key support is at 1.235-1.243 and resistance 1.27-1.284.