Canadian Dollar to Face Heavy Event Risk, BoC Interest Rate Decision

Nevertheless, the Bank of Canada is widely anticipated to hold borrowing costs at the record-low next week as policy makers aim to encourage a sustainable recovery throughout the region, and commentary following the rate decision is likely to move the markets as investors weigh the outlook for future policy. Market participants are pricing a zero percent chance for a rate hike by the BoC according to Credit Suisse overnight index swaps, while a Bloomberg News survey shows all of the 20 economists polled forecast the central bank to keep the benchmark interest rate at 0.25% this month, and the central bank may keep rates on hold throughout the first-half of the year as policy makers see a risk for a protracted recovery.

At the same time, the economic docket for the following week is likely to reinforce a mixed outlook for the world’s eighth largest economy as market participants forecast retail sales to slump 0.3% in November, while the headline reading for inflation is expected to increase to an annualize pace of 1.8% in December, which would be the highest rate of price growth since November 2008. Furthermore, manufacturing sale are projected to increase 1.4% in November after rising 2.0% in the month prior, while wholesale demands are expected to grow 0.4% after rising 0.3% in October, and the slew of data is likely to spark volatility in the exchange rate as investors mull over the prospects for a sustainable recovery. - DS