Canadian dollar traders should watch out for surprises when the Bank of Canada announces their interest rate decision tomorrow morning. Interest rates are expected to be left unchanged at 4.5 percent, but some traders are gearing up for a surprise rate hike or hawkish comments from the Bank of Canada.
The labor market is tight and most economic data has been firm including this morning’s leading indicators report. Although the strong Canadian dollar is expected to reduce inflationary pressures, this dynamic could be offset by stronger wage pressure. We continue to believe that the Bank of Canada will be very cautious about saying anything that could strengthen the Canadian dollar even further, but we acknowledge the fact that the economy is strong. Oil prices also closed at a new record high above $86 a barrel. It may just be a matter of time before the Canadian dollar reacts. Gold prices are also higher, but the Australian dollar has given back its earlier gains on the back of the reversal in the stock market. It has outperformed the New Zealand dollar, which suffered from weaker than expected inflationary pressures. Instead of rising, annualized consumer price growth dropped from 2 to 1.8 percent.
Written By kathy Lien, Chief Currency Strategist for dailyFx.com