The highlight of the week is the BoC rate decision on Wednesday. Economists at Scotiabank discuss CAD outlook after being one of the weakest G10 performers over the past five days.

CAD should improve on BoC hike

There is a small majority of forecasts in the Bloomberg survey currently favouring a 25 bps hike in the target rate to 5.00% but it’s a close call; swaps are leaning towards a hike, with 16-17 bps of tightening priced in. Most of the major Canadian banks are forecasting a rate increase, including Scotia.

The week ahead should be positive for the CAD, assuming the BoC delivers. Communication will be an import factor in how the markets react to the decision, however. A dovish hike will likely weigh on the CAD. 

At the same time, if US CPI data do show the expected (or sharper) decline in headline prices (also Wednesday), the USD may soften broadly.