The Canadian dollar starts the day up 0.3% against the US dollar, as earnings reports continue to surprise to the upside for the second day in a row and help lift sentiment and stock markets. But the real action will happen later today when the Bank of Canada makes its announcement at 10 AM, followed by the release of its Monetary Policy Report. The consensus expectation is that the Bank will hold steady on all fronts. That is, there will be no change in rates and no change in asset purchase programs initiated in response to the pandemic. In the unlikely scenario that the status quo is not maintained by the Bank of Canada then we will see significant volatility around the announcement. More likely, we will see the bank refrain from any changes to policy but attempt to provide forward guidance to the markets in its language. Given some of the comments that Tiff Macklem made late in the year in 2020, it would not be entirely surprising to see the Bank note the strength of the Loonie in an attempt to push the currency lower and improve competitiveness internationally. Some have speculated about a micro cut to rates (that is, a cut of less than 25 basis points) as a potential signaling mechanism about the Bank’s intentions to be accommodative for a very long time. We view that as very unlikely.
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