Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

How To Trade FOMC And Bank Of Canada Rate Decisions

By Kathy LienForexJan 25, 2022 04:06PM ET
www.investing.com/analysis/how-to-trade-fomc-and-bank-of-canada-rate-decisions-200615930
How To Trade FOMC And Bank Of Canada Rate Decisions
By Kathy Lien   |  Jan 25, 2022 04:06PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
Wednesday’s Federal Reserve and Bank of Canada monetary policy announcements are the most important events on this week’s calendar. After Monday’s bigger moves, the U.S. and Canadian dollars have fallen into tightened trading ranges. This contrasts with the stocks that sold off hard in Asia and resumed their slide during the New York session ahead of the Federal Reserve’s announcement. The wild volatility in the equity markets is a sign that investors are nervous about how hawkish both central banks will be tomorrow.
 
The Federal Reserve is widely expected to signal a rate hike in March that would kick off a series of tightening measures. The latest swings in the stock market have shaved expectations for a 50bp hike at the next meeting, but 25bp is priced in completely with an expectation for a total of 100bp of tightening in 2022. The U.S. dollar’s latest consolidation confirms these expectations, which means that for the greenback to extend its gains, the Fed needs to be very hawkish. 
 
With inflation growing at its fastest pace since December 1982, Federal Reserve Chairman Jerome Powell has no choice but to kick off the central bank’s first rate hike since 2015. The persistence of supply-chain shortages and continued strength in commodity prices means inflation could stay uncomfortably high for a very long time without sufficient policy response. The Fed hoped that weaker demand would slow growth as there are signs everywhere of the recovery peaking, but it hasn’t and it can no longer afford to wait. 
 
The question now is the roadmap.
 
If Powell confirms that rate hikes will begin in March and suggests the Fed needs to aggressively control inflation with more than four rounds of tightening, the U.S. dollar should soar against all of the major currencies. However, anything short of that could trigger a relief rally in equities and currencies that eases demand for U.S. dollars. This could come in the form of Powell suggesting that inflation could normalize quickly after a few rounds of tightening . Or, he could emphasize that further hikes are contingent on economic performance. Powell could also say they are not pre-committing to any course of tightening, but that’s unlikely.
 
The real question is: How much will inflation fall in reaction to the first rounds of tightening? And will that be enough? If the Fed believes the decline could be quick and significantly, its guidance could be less hawkish. However, if it thinks that it will take aggressive efforts to shift price trends, then significant hawkishness may be warranted. Which way the central bank leans will determine not only how currencies and equities trade after the FOMC but for the rest of the week.
 
Canadian dollar traders will also be watching the Bank of Canada’s monetary policy meeting. The BoC makes its announcement before the Fed tomorrow and volatility in the CAD is assured. The majority of economists do not expect a rate hike this month, but the market is pricing in a 75% chance of a quarter-point move. The Canadian dollar is trading higher ahead of the rate decision. Although many provinces in Canada reintroduced restrictions in the latest COVID-19 surge, the labor market is strong and inflation is hot. More precisely, employment is at a record high and prices are growing at their fastest pace in three decades.
 
The BoC was one of the first central banks to reduce stimulus providing during the pandemic, and with the economy chugging along, it could surprise with a rate hike. If the BoC jumps the gun and raises interest rates, USD/CAD could tumble back towards 1.25, although with the Fed meeting a few hours later, the loonie biggest moves should be against EUR, GBP, AUD or NZD. If the BoC under-delivers and leaves interest rates unchanged, investors will be looking to sell Canadian dollars. 
How To Trade FOMC And Bank Of Canada Rate Decisions
 

Related Articles

How To Trade FOMC And Bank Of Canada Rate Decisions

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (15)
Marc Williams
Marc Williams Mar 03, 2022 9:32PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
hello friend
Patrick Aznavourian
Patrick Aznavourian Jan 26, 2022 11:10AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
last rate hike was on Dec 2019, not 2015 as written
Wilks Campbell
Wilks Campbell Jan 26, 2022 2:47AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
You cannot trade these random stuff. It is gambling !
Kaveh Sun
Kaveh Sun Jan 26, 2022 12:09AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Trading b4 the fomc minute is gambling. I would rather wait a few hours after. I get worst price but i dont get up big or down big in my account
sizwe malaza
sizwe malaza Jan 26, 2022 12:00AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
What about shrinking their balance sheet today
Chinedu Mmaduebo
Chinedu Mmaduebo Jan 25, 2022 11:01PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Thanks for the update Kathy
Don Getty
Don Getty Jan 25, 2022 10:04PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
about a week late on your analysis - but when your writing for the sheep - I understand - after tomorrow we'll have about 7 quiet weeks until the next hype phase in march
Don Getty
Don Getty Jan 25, 2022 9:15PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
have to be honest this story is about a week late - I bought HUV a week ago expecting the volatility and have made a nice 40% profit - figure another good day tomorrow, then an ease off over the next 8 weeks until the next round of hype occurs, thank you sheep
Bob Silva
Bob Silva Jan 25, 2022 6:08PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Unless you crash everything, any move is meaningless. People can no longer buy homes.
Prem Chhatpar
Prem Chhatpar Jan 25, 2022 6:04PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Present inflation is more due to supply chain issues rather than money supply.
Jeremy Johnson
Jeremy Johnson Jan 25, 2022 6:04PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
which is caused in a large part by vaccine mandates.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email