After the bullish start of the year, the rand has started to weaken since the last Thursday. Let’s point out the main factors affecting the ZAR and set the key levels for this week’s trading.
Is the BOC decision really so clear?
On January 17 the Bank of Canada presents the Interest Rate Announcement and Monetary Policy Report. It is an important event for the Canadian currency that will cause depreciation or appreciation of it.
Coming back to the past the Bank raised the rates twice last year in July and September that pushed the Canadian dollar up. That is why the most of the experts suppose that the Bank will raise the interest rate in 25 basis points to 1.25% despite the uncertainty around the North American Free Trade Agreement (the USA is going to leave the NAFTA). Economists also take into account the large increase in jobs and the survey that showed that Canadian companies are optimistic about the future sales. These factors influenced the opinion of these economists and analysts. Some of the economists even predict another rise in the third and fourth quarters that will bring the benchmark to 1.75% by the end of 2018.
No one has doubts that in general, the economic situation has become better in several points. They are retail sales, GDP growth, consumer price index and activity in the labor market.
But there is another opinion about the rise of the interest rate this time. Some analysts claim that the Bank of Canada can refuse to raise the interest rate because of the doubts about the NAFTA negotiations.
How to trade on this event
Economists consider several scenarios that can happen to the decision of the Bank of Canada. The first one is when the Bank raises the interest rate in 25 points but declines the importance of this decision.
The second one is when the Bank increases the interest rate in 25 points and gives a reason to suppose that it will tighten the policy soon.
And the third one is when the Bank will not lift the interest rate but makes it clear that it is going to do it in March.
All these scenarios can affect the USD/CAD pair in different ways. The first scenario is neutral for the CAD. The second one is bullish for loonie. Finally, in the third case the Canadian dollar will plunge in the short term.
Making a conclusion, we can say that there is no accurate prediction about the decision of the Bank of Canada. Some analysts think that the best option is to sell USD/CAD before the rate decision and looking for opportunities after. However, the decision of the Bank of Canada will be announced tomorrow at 17.00 MT time and we will see what will happen to the currency.
If we look at the daily charts of the US dollar index and the USD/JPY pair, we will see a misleading trend.
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