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\u2019s press conference at 14:30 GMT, while markets price only just over 2 basis points of tightening by end-2026.<\/p>\n\n
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.<\/p>\n\n
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.<\/p>\n\n
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.<\/p>\n\n
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. <\/p>\n\n
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.<\/p>\n\n\n\n