Bank of Canada preview: At interest rates peak?

Fawad Razaqzada
By :  ,  Market Analyst


  • BoC no change in policy expected
  • Powell testimony and jobs reports from US & Canada among week’s other key events
  • USD/CAD could be heading to 1.37+


The Bank of Canada has raised interest rates eight times since the first quarter of 2022, but that run is expected to end at Wednesday’s policy meeting, meaning that the overnight rate is likely to remain at 4.50%. If so, this would mark a turning point and increase the disparity between the BoC and Fed policy divergence. As such, the USD/CAD could stage a bullish breakout. That is assuming Jerome Powell does not ruin the dollar bulls’ party on Tuesday afternoon by any surprisingly dovish comments. The Fed Chair is due to testify about Semi-Annual Monetary Policy Report before the Senate Banking Committee, in Washington DC.  


What are analysts expecting from BoC?

Well, in short, no change is expected in monetary policy. After raising interest rates by a combined 425 basis points worth of hikes, the North American central bank has already signaled at its previous meeting that it would pause tightening to let the economy digest the impact of the previous hikes. Thus, if there are any further adjustments to interest rates, this would come as major surprise to the market.


How is the Canadian economy coping?

On the jobs front, it is doing very well as we found out last month when 150 thousand jobs were added into the economy in January against expectations of 15, adding to the impressive additions seen in the previous several months. There are now over 800 thousand more people in work than before the pandemic struck in 2020. But that’s where the good news ends. Since the BoC’s January meeting, growth has disappointed, with GDP unexpectedly falling 0.1% month-over-month and stalling at 0% annual pace. Inflation has also slowed more than expected, underscoring the BoC’s wait-and-see approach.

But it is concerns about the slightly longer-term outlook that could see the Canadian dollar weaken moving forward.

According to analysts at ING, “Canada is much more exposed to interest rates rate hikes via a higher prevalence of variable rate borrowing and high debt levels versus the US.” ING points to the fact that in the US, the 30-year fixed rate mortgage is the most common borrowing method. But in Canada, they have highlighted that it is five years or less. This makes Canada’s housing market more sensitive to interest rate changes. What’s more, Canadian household liabilities are equivalent to more than 180% of disposable income versus 103% in the US, notes ING, and that house prices “in several cities are ten times greater than average household incomes, whereas in the US it is typically five to six times income.”


USD/CAD looking increasingly bullish

Following the breakout above 1.35 handle a couple of weeks ago, the USD/CAD has been stuck in consolidation. But with rates being somewhat comfortably above the still-rising 200-day average and 21-day exponential average, the path of least resistance is objectively to the upside.


We will thus maintain a technical bullish view on this pair for as long as it holds support in the shaded region on the chart, between 1.3470 to 1.3580. We think the probability of an upside breakout is greater than a downside move from this area, owing to favourable macro factors.

However, we are a bit cautious in our view as the recent improvement in risk appetite might discourage the dollar bulls from opening significant long positions in the greenback.


What has kept USD/CAD supported?

The USD/CAD has been on the ascendency because investors are expecting the Fed to hike rates further and keep its monetary policy in contractionary mode longer than previously expected. This is all because incoming data has shown that price and wage inflation have been sticky, while employment has remained very strong. So, it has been more of a US dollar story than a Canadian dollar one. That said, the latter hasn’t exactly been falling off a cliff. It has been helped in part by mild ‘risk-on’ trade, keeping the downside limited for commodity dollars across the board. But expectations that the Bank of Canada is going to pause its rate hikes is what really has provided support on the dips.


What else to watch apart from BoC rate decision?

As well as the rate decision from the Bank of Canada this week, we also have US and Canada’s monthly jobs reports on Friday, in addition to a handful of other second tier data that will be released throughout the week. Fed Chair Powell will also testify on Tuesday, which should keep the USD/CAD volatile. In recent weeks, investors have shown preference to the US dollar across the board, owing to hawkish FedSpeak amid strength in data from the world’s largest economy.

The table below shows some of the key events that could impact the direction of the USD/CAD pair (we have highlighted the most important):



Time (GMT)





Tue Mar 7



Fed Chair Powell Testifies

Wed Mar 8



ADP Non-Farm Employment Change





BOC Rate Statement


Overnight Rate




Fed Chair Powell Testifies


JOLTS Job Openings





10-y Bond Auction


Thu Mar 9



Unemployment Claims



Fri Mar 10



Employment Change




Unemployment Rate




Average Hourly Earnings m/m




Non-Farm Employment Change




Unemployment Rate





Once the BOC rate decision is out of the way, the focus will turn to Canada’s jobs market again. Will we see another strong showing in employment sector Friday? If not, this should further weigh on the CAD. But it is not as simple as that. Note that the US non-farm payrolls report will also be published at the same time. The resilience of the US labour market in the face of rate hikes and high inflation has kept the Fed on a hawkish mode, which helped to keep the dollar supported last month. Will we see further evidence of a tight US labour market? If so, this should help support the dollar further, and keep the USD/CAD on a bullish path.


-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

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Bank of Canada FAQs

How often does the Bank of Canada meet?

The Bank of Canada meets eight times a year to assess the target for its overnight rate. These dates are fixed throughout the year. The BoC also releases a quarterly Monetary Policy Report, Business Outlook Survey and Survey of Consumer Expectations.

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What is the Bank of Canada meeting schedule for 2023?

The Bank of Canada’s meeting schedule for 2023 is:

  • Wednesday, January 25*
  • Wednesday, March 8
  • Wednesday, April 12*
  • Wednesday, June 7
  • Wednesday, July 12*
  • Wednesday, September 6
  • Wednesday, October 25*
  • Wednesday, December 6

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What is the Bank of Canada rate?

The Bank of Canada rate is the overnight rate or policy interest rate, which is the cost at which financial institutions borrow and lend to each other. The BOC sets its rate to influence the inflation rate – charging more in periods of high inflation to encourage saving, and charging less in periods of low inflation to encourage spending.

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