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BOC rate decision preview

The only Major central bank rate decision this week is scheduled for 3pm when the Bank of Canada will unveil their latest monetary policy mix. The bank is widely expected to keep its overnight policy rate unchanged at 0.5% leaving the monetary policy report as the market’s primary focus.

Specifically, traders will likely focus on any upgrades to growth prospects given better data and any shift forward of the output gap from mid-2018. Either of these could be perceived as leaning more balanced to hawkish and may be seen as  significantly CAD positive.

The recent data has been better than expected with last week’s employment change rising by 19.4k - the 8th successive beat in a row. However Governor Poloz, who gives a press conference at 4:15PM, could pour some cold water on this. The majority of Q1 numbers have improved vastly but wage growth has been lagging, and if the BOC want a reason to refrain from a hawkish shift this could well be it. 

Traders may also be looking to see whether a rate hike was discussed. Comments from Poloz on this or to downplay this notion could be market moving. A survey of Bloomberg economists suggests that risks are tilted toward CAD gains and that on balance the Monetary Policy Report is more likely to sound upbeat with US fiscal policy the major unknown - this could be another factor that the BOC may use to dampen 2017 economic growth projections.  

 The Canadian dollar is rising across the board today and adding to recent gains made in part to a recovery in the oil price. The recent data has also helped the cause and USDCAD (-0.07%) has fallen towards potentially key support in the 1.3275-1.3300 region.

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 Another factor that has aided the Canadian dollar is the possible revision to the North American Free Trade Agreement (NAFTA). The latest reports suggest that there might only be moderate adjustments made which would be seen as CAD positive given the initial view when Trump won the election that the present treaty would be severely overhauled.   


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