The Bank of Canada is expected to hold its policy rate at 2.25% on Wednesday, which would mark a seventh straight decision without a move after it again stood pat in July. The bank has warned that persistent oil-price increases could force consecutive rate hikes, though this is not its central outlook. It will publish the decision at 13:45 GMT, followed by Governor Tiff Macklem’s press conference at 14:30 GMT, while markets price only just over 2 basis points of tightening by end-2026.
In its latest projections, the BoC cut its 2026 growth forecast to 0.7% from 1.2%, even as it lifted annualised GDP growth for Q2 to 2.5% versus 1.5% projected in April, before easing to 1.5% in Q3; growth is then seen at 1.8% in both 2027 and 2028 with an ongoing output gap. Inflation forecasts were raised to 2.5% in 2026 from 2.3%, then seen at 2% in 2027 and 2.1% in 2028. July data showed headline CPI at 3.0% year on year versus 2.8%, core at 2.3%, and CPI-Common, Trimmed and Median at 2.7%, 1.9% and 2.0%. Technical levels cited include USD/CAD SMAs at 1.3915, 1.4040 and near 1.3840, with 1.4080, 1.4129 and 1.4248 above, while 1.3731 and 1.3549 sit below; RSI is near 47 and ADX around 29.
Bank of Canada Decision and Immediate Trading Strategies
Today, the Bank of Canada is highly likely to keep rates steady at 2.25%, which means we should prepare for short-term volatility in the Canadian Dollar. We recommend derivative traders focus on short-term options straddles to capture any sudden moves following Governor Macklem’s press conference. Historically, the USD/CAD daily range expands by an average of 70 to 80 pips on BoC announcement days, making breakout strategies highly viable.
We should closely watch the immediate technical boundaries, specifically the 100-day moving average at 1.3915 and the crucial 200-day support at 1.3840. If the bank strikes a more hawkish tone due to July’s 3.0% CPI spike, we expect USD/CAD to test the lower support zone near 1.3731. Conversely, a focus on the downgraded 2026 growth forecast of 0.7% could push the pair past 1.4040, opening doors to buy call options targeting 1.4129.
Hedging Strategies Amid Oil Risks and Volatility Outlook
Since the bank highlighted oil as a major inflation risk, we must hedge our currency positions using energy derivatives. With global crude oil prices experiencing frequent supply-driven fluctuations, any sustained commodity spike will directly boost the Loonie. We suggest utilizing CAD-denominated futures or knock-out options to protect against sudden energy-driven reversals in the exchange rate.
Over the next few weeks, we anticipate a relatively tight trading range as the market digests today’s decision and waits for upcoming employment data. Implied volatility on one-month USD/CAD options is currently hovering near a stable 6.2%, suggesting that option premiums are relatively cheap for buyers. We should look to accumulate longer-term put options if USD/CAD rallies toward the 1.4248 ceiling, betting on an eventual return to the mean.
