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Expected scenario: Can the Bank of Canada rush to raise interest rates?

Expected scenario: Can the Bank of Canada rush to raise interest rates?



Currency markets are awaiting the Bank of Canada meeting on Wednesday, specifically at 3:00 p.m. GMT, and an interest decision will be issued at the meeting, in addition to the monetary policy statement, and then you can follow the conference press release from the bank's governor, and These decisions can have a strong impact on the movements of the Canadian dollar in the foreign exchange market. Below is what is expected of the Bank of Canada's decisions and what the reasons are for decision making within the Bank:


First: A look at the most important economic data from Canada during the last period

The Canadian economy had a mixed performance over the past month, which was demonstrated by various economic data, especially inflation data, which showed a strong rise in inflation, but labor market data showed strong weakness last month.


Inflation data showed that the consumer price index, inflation in Canada, declined 0.9% last January, beating market expectations for 0.6% growth in the index alone. It is also higher than the previous reading that showed Canadian inflation contracted 0.1% last December.


Additionally, Statistics Canada released labor market data for the month of January, which showed weak conditions in the labor market with heavy damage to the employment change index during that period, as the economy lost around 200.1 thousand jobs, which is higher than market expectations for a loss of around 121.5 A job only. The previous reading of the index had recorded the addition of 54.7 thousand jobs during the month of December.


At the same time, the country's unemployment rate posted a notable increase from the previous reading, as the index rose to just 6.5% last January, worse than market expectations for a Canadian unemployment rise to 6, 3%. The previous reading of the index showed that unemployment had stabilized at 5.9% last December.


Second: Statements from decision makers at the Bank of Canada on the future of monetary policy

During the last period, some statements were issued to decision makers within the Bank of Canada, confirming the possibility of raising interest rates soon, as the Deputy Governor of the Bank of Canada, Timothy Lane, stated that the Bank of Canada will be smart. and if necessary, it will be strong in using monetary policy tools to deal with high inflation right now. Lately, the Bank of Canada is increasingly focused on countering upside risks to inflation.


The Deputy Governor of the Bank of Canada added that we should expect the possibility of more surprises before the epidemic ends, and that the Bank of Canada expects supply disruptions to disappear and inflation to decline rapidly during the second half of this year. Interest rates should also tend to rise in the coming period. This tone suggests that a tightening of monetary policy is coming, coinciding with the high rate of inflation, which is a great concern for the main central banks.


Third: The rise in oil prices and its impact on the decisions of the Bank of Canada?

In the past period, crude oil prices clearly and noticeably increased, which positively affected Canadian dollar trading and fueled the rapid recovery of the Canadian economy from the fallout from the emerging coronavirus, especially as the oil sector plays a major role. and has a large part in the Canadian economy, and therefore the continued rise in the price of oil and its positive impact on the dollar and the Canadian economy, may be one of the main factors that may support the beginning of the rise in interest rates. interest, coinciding with high rate inflation


Fourth: What is expected of the decisions of the Bank of Canada tomorrow?

Expectations indicate that the Bank of Canada will raise interest rates during this long-awaited meeting on Wednesday morning, which is the most likely scenario, so the markets will be attentive to the interest statement and the press conference of the bank's governor, in addition to of its positive points, and this may have a positive impact on Canadian dollar trading against other currencies, especially as it may include hints about continued monetary policy tightening in the coming period.


While on the other hand, the bank may keep interest and monetary policy unchanged, and speak of continued economic uncertainty,



especially with the new geopolitical tensions and the Russian invasion of Ukraine, and the western sanctions imposed on Russia that would negatively affect global economies. , and this cautious scenario may have a negative impact on the price of the Canadian dollar in the currency markets.


Expected scenario: Can the Bank of Canada rush to raise interest rates?