BOC Interest Rate Decision Forex Trading Plan 09/08/10 - by Henry Lui

Bank of Canada (BOC) will once again meet for their Overnight Rate (Interest Rate) and the decision will be announced today at 9:00am sharp. Along with the rate decision, BOC Carney will also announce a Rate Statement to further explain today’s decision. Here’s what analysts are expecting:

9:00am (NY Time) CA BOC Rate Decision Forecast 1.00% Previous 0.75%
ACTION: USD/CAD SELL 1.00% BUY 0.75%

The Trade Plan
BOC (Bank of Canada) will be hiking its Overnight Rate as the majority of analysts agree (14 out 20 as surveyed by Bloomberg). BOC is likely to remain optimistically cautious in its tone but the overall market is expecting a rate hike.

However, since this rate decision is not perceived as a “done deal”, it is possible that we’ll see market react to both possibilities, therefore we would be looking to BUY USD/CAD if BOC decides to leave rates unchanged and SELL USD/CAD if BOC decides to hike as expected.

I’ll be trading this release using Spike Trading method as the odds for either possibilities are high, therefore it is almost guaranteed that we’ll see strong market movement immediately after the release.

The Market
As CAD gained across the board last Friday after NFP release showed the underlying market sentiment that a better U.S. economy is likely to ease BOC’s concerns over global uncertainty, which increases the probability for BOC to hike rates today.

As a matter of fact, Credit Suisse is predicting about 65% of probability for a rate hike today; however, there is 35% of possibility that BOC may just hold rates unchanged and adopt a wait-and-see stance for the time being.

Additional Thoughts
BOC has been on target with its monetary policy and the series of rate hikes since June has been done in such a way that avoided parity level on the USDCAD pair. This may be another opportunity to BOC to hike interest rate and at the same time warn the market over future uncertainty, which will make CAD less strong, thus keeping the volatility to a minimum.

On the other hand, we are also seeing the economic growth in the 2nd quarter slowing, along with negative job data. With US economic outlook lagging, BOC may pause for the time being…

Since both outcomes have merits, market will move after the rate decision, and the idea is to get in and hold on to the trade as USDCAD usually doesn’t retrace much.

Pre-News Considerations
I’ll be looking to SELL USD/CAD prior to the release, from recent highs.