Canadian dollar eyes GBP, BoC meeting

After a 3-day rally, the Canadian dollar has reversed directions on Tuesday and edged lower. Canada releases GDP for March later in the day.

Canada’s GDP climbed in February by 1.1% MoM, the highest monthly growth rate since March 2021. The March reading is expected to fall to 0.5%. This would mark a 10th straight monthly expansion. On an annualized basis, GDP is forecast to come in at 5.4%, down from 6.7% prior. Canada has been easing Covid restrictions, which has boosted the services sector, and manufacturing and construction are also accelerating. Unless the GDP drastically underperforms, I don’t anticipate any pressure on the Canadian dollar today.

BoC set to hike by 50-bps

The focus on GDP won’t be lengthy, as attention will shift to the Bank of Canada rate decision on Wednesday. The BoC is widely expected to raise the benchmark rate by 50-bps, which would move the rate to 1.5%. This would be a second straight 50-bps hike, as the BoC has signalled that it will aggressively tighten policy in order to curb soaring inflation. CPI has ballooned to 6.8%, its highest level in 30 years, and if inflation continues to accelerate, a massive 75-bps increase cannot be ruled out.

The BoC is clearly feeling the pressure as inflation is yet to ease, and could continue delivering 50-bps salvos. The neutral range for interest rates is around 3 per cent, and the big question is will we see inflation peak before rates are that high, or will the Bank have to raise rates above the neutral range in order to wrestle down inflation, which would take a toll on economic growth. In the meantime, it’s clear that interest rates will continue to rise at the same time that the Federal Reserve is also raising rates. That means the Canadian dollar should not lose ground due to Fed tightening.


USD/CAD Technical

  • There is support at 1.2608 and 1.2548
  • USD/CAD is testing resistance at 1.2664. Above, there is resistance at 1.2775

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

Kenny Fisher

Market Analyst at OANDA
A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.
Kenny Fisher

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