What to expect from BoC's interest rate decision

Bank of Canada is widely expected to increase interest rates, a move that generally attracts foreign investment and boosts demand for a currency, pushing that currency's value higher.

The Canadian dollar was worth 77.61 cents US on Friday after rising by slightly more than 0.6 of a cent. Exactly how high could the loonie fly after the Bank of Canada makes its anticipated move?

"There's still room for the Canadian dollar to gain," said Adam Button, a currency analyst with ForexLive.com. Button expects the loonie to head close to 78 cents after an interest rate hike, and as high as 80 cents over the following month.

Currency traders started gaining confidence that the bank would finally pull the trigger on interest rates after reading bullish remarks in a speech by Bank of Canada senior deputy governor Carolyn Wilkins on June 12, said Button.

Shaun Osborne, chief foreign exchange strategist at Scotiabank, also expects the loonie to hit 78 cents "in the not-too-distant future."

But the near-term fate of the Canadian dollar depends, Osborne said, on the exact language of the policy statement that accompanies the Bank of Canada's interest rate announcement.

"It's just going to be a question of how the markets interpret what the bank tells us," said Osborne. "If there is an indication in the statement that another rate increase is going to come through fairly quickly … or if, on the other hand, the bank suggests that they're in no particular rush to raise interest rates again."

Karl Schamotta, director of global market strategy at Cambridge Global Payments, believes the Canadian dollar could fall in value on the announcement of an interest rate increase, possibly below the 77-cent mark.

That's because the currency speculators who bet heavily that the loonie will increase will want to lock in their profits by selling off the currency once the Bank of Canada moves, he said.

We ramain cautious for the currency in the minutes after the data and we expect high volatility.

Source: Bloomberg 

Junior Trader Stefan Panteleev

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