The Overnight Rate is scheduled to be released by the Bank of Canada today at 18:00 GMT+4. The market anticipates that the Bank of Canada (BOC) will keep interest rates maintained at 4.50% while they wait for upcoming CPI inflation figures to be released on 27th June. To evaluate the potential impact on the Canadian Dollar, let’s examine the historical data provided in Figures 1 and 2.
Figure 1: Canada Overnight Rate, forexfactory.com
The Overnight Rate in Canada discusses information regarding the determined interest rate value set by the BoC, spanning the period from October 26, 2022 to April 12, 2023 (Figure 1).
The data shows that after a period of raising rates, on both March 8, 2023 and April 12, 2023, the interest rate was maintained at 4.50% (Figure 1).
Now, let’s take a look into how these interest rate decisions have influenced the USD/CAD currency pair.
Figure 2: USD/CAD currency pair % change in price, 1H Time frame, investing.com
The USD/CAD currency pair percentage change in price provides insights into the 1-hour time frame movements following the announcement of Canada’s Overnight Rate (Figure 2).
It is observed that on both October 26, 2022 and December 7, 2022, when the interest rates were increased (Figure 1), there was a decline in the percentage change of the USD/CAD pair (Figure 2). This suggests that the Canadian dollar has gained more value compared to the U.S. Dollar, causing the pair to decrease.
However, on January 25, 2023, despite the 25 basis points increase in interest rates (Figure 1), the USD/CAD currency pair witnessed an increase (Figure 2). This explains that the U.S. Dollar managed to gain more value compared to the Canadian Dollar during that period.
From January 25, 2023 to March 8, 2023, the interest rate was maintained at a rate of 4.50% (Figure 1), causing the USD/CAD pair to rise (Figure 2). The upward movement in the currency pair was due to the Canadian Dollar falling in value, which was influenced by the BoC’s decision to maintain the interest rate and lower-than-expected inflation figures.
While on the other hand, from March 8, 2023 to April 12, 2023, interest rates were also maintained at a rate of 4.50% (Figure 1) but the USD/CAD pair witnessed a drop (Figure 2). This can be attributed to 2 factors. Firstly, the U.S. Dollar Index (DXY) was under bearish pressure, with the Fed signaling a potential interest rate pause. Secondly, inflation came in higher than expected in Canada during this period.
Given that the BoC is anticipated to pause the interest rate at 4.50% and upcoming inflation figures tend to come in higher than expected, will the Canadian Dollar follow its historical momentum and decline in value?
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