Home Daily Commentaries CAD volatility ahead of interest rate announcement anticipation

CAD volatility ahead of interest rate announcement anticipation

Monday 6 March, 2023

Daily Currency Update

The Canadian dollar could show great volatility against most major currencies this week as the public awaits the Bank of Canada’s interest rate announcement on March 8th. Early forecasts released on Friday indicate no changes to the rates, but the market is bracing for what the Bank of Canada will do thereafter.

The CAD has been shifting on the back of the USD recently as the US market continues its hawkish repricing of interest rates for the Federal Open Market Committee (FOMC). High watermark rates for 2023 have now pushed up above 5.4% while money markets forecast no change in the Bank of Canada's upcoming rate decision. This central bank move could weigh negatively on the CAD because the FOMC tightening is baked into current pricing which means additional positive US economic data could spur the USD up further.

Key Movers

The US dollar index (DXY) was down by roughly 0.3% heading into the weekend as positive trading in European markets carried over into the North American session. This trend has continued this morning as equities rally across all markets to start the week. The USD aimed slightly lower this past week, with the DXY falling 0.7%. Last week was the best week for the S&P 500 since January, meaning that sentiment was a key driver for financial markets. This lowered the demand for safe haven currencies like the US dollar.

The Reserve Bank of Australia will be in the spotlight tomorrow morning with its interest rate decision. Another 25 basis point increase is expected, which will be the 10th consecutive rate hike. The AUD could find some support against the U.S. dollar ahead of Federal Reserve Chair, Jerome Powell’s, semi-annual monetary testimony to lawmakers later in the day.

Eurozone retail sales decreased by 2.3%, coming in worse than the expected 1.8%. This is a 0.3% increase from a month earlier following a 1.7% drop in December.

Expected Ranges

  • EUR/CAD: 1.4388 - 1.4478 ▲
  • GBP/CAD: 1.6242 - 1.6361 ▲
  • AUD/CAD: 0.9143 - 0.9210 ▲
  • USD/CAD: 1.3557 - 1.3631 ▲