Loonie Will Likely Be Well Behaved as BoC to Echo Cautious Tone

Loonie Will Likely Be Well Behaved as BoC to Echo Cautious Tone
© Reuters.

By Yasin Ebrahim

Investing.com – The Canadian dollar has started the week on the front foot, putting the squeeze on short sellers, but the loonie is likely to be well behaved when the Bank of Canada unveils its monetary policy decision on Wednesday.

USD/CAD fell 0.78% to 1.2654, driven by a return in risk sentiment amid easing concerns about the Omicron Covid-19 variant and a surge in oil prices.

\”We believe that a cautious approach this week by the BoC given the lingering uncertainty around the risks and economic impact of the new variant should not surprise the market and hit CAD as long as policymakers do not go as far as signaling there are risks of a deviation from current policy plans,\” ING added.

The Bank of Canada is expected to keep its policy unchanged, with its benchmark rate forecast to remain at 0.25%.

The BoC was one of the first major central banks to tighten monetary policy, and last month announced that it would immediately end its quantitative easing, or bond-buying program and guided for a first rate hike by mid-2022.

The hawkish policy outlook in the prior meeting stoked bets for a rate hike, with ING forecasting the BoC to raise interest rates four times next year – one in each quarter, citing a booming jobs market and bubbling inflation. 

\”Barring a major setback to the global economy due to the Omicron variant, we still expect USD/CAD to consistently trade below 1.25 in 2022,\” IGN added.

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