Winnipeg – The Bank of Canada will announce an interest rate decision on Wednesday.
The likelihood of a cut is already priced into the loonie, according to one analyst, but if the bank keeps rates steady it could move the beleaguered currency higher.
The Canadian dollar was trading around US69 cents near midday on Tuesday, which is close to undervalued, said Mark Chandler, head of Canadian fixed income and currency research at RBC Dominion Securities.
“Obviously the Bank of Canada’s decision tomorrow has been on everyone’s radar,” he said.
Bank of Canada’s governor Stephen Poloz is expected to announce the bank’s decision on interest rates Wednesday at 9 a.m. CST.
The bank is expected to either keep interest rates steady at 0.5 percent, or lower them to stimulate the economy, which has been rocked by the falling price of crude oil that is slowing investment in the oil patch.
If the bank cuts interest rates, which market watchers say is a possibility, it will pressure the loonie, but not dramatically.
“I think it’s mostly priced into the Canadian dollar. There’s still probably some room for some modest weakness,” Chandler said.
Chandler said the market has priced in about a 50 percent likelihood that a cut will happen.
If the bank leaves rates alone, the loonie might appreciate a little.
Chandler said RBC’s official expectation is that there will be no cut.
Outside of the Bank of Canada’s influence, the Canadian dollar’s movement is dependent on oil prices.
People are worried about oil continuing to slide, Chandler said, but prices in futures market for later in the year indicate prices will drift higher from current levels as the year goes on.
“That might help to stem the decline in the currency,” Chandler said.
