Bank of Canada on the Agenda As Kiwi Receives Boost on RBNZ

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Following its July policy meeting, the Bank of Canada (BoC) kept its benchmark rate at 0.25 percent, as expected. The Bank of Canada, on the other hand, chose to lower the weekly net asset purchase objective for government bonds from C$3 billion to C$2 billion.

The New Zealand dollar has risen sharply after the Reserve Bank of New Zealand (RBNZ) announced the end of its asset purchase program. The Australian dollar is also somewhat higher as a result of the movement.

Dollar, on the other hand, is unable to sustain the post-CPI gain and weakens marginally. The main European majors are going through a period of uncertainty. The emphasis will now shift to the Bank of Canada’s policy announcement and the Canadian Dollar’s reception.

On Wednesday, the New Zealand currency rocketed past the symbolic 70-dollar mark. NZD/USD is currently trading at 0.7015, up 1.07 percent on the day.

The RBNZ surprised the markets by announcing the end of additional asset purchases under the Large Scale Asset Purchase Program (LSAP) until 23 July. Meanwhile, OCR remained unchanged at 0.25%. And the Lending Financing Program has been maintained. The committee agreed that “the level of monetary stimulus can now be reduced to minimize the risk of not meeting its mandate.”

The central bank said the economy “remains robust” despite the continued impact of international border restrictions. Cumulative economic activity is already “above pre-COVID-19 levels.” He expected “short-term spikes” in the main CPI in Q2 and Q3, reflecting “one-off” or “temporary” factors. In the absence of any further significant shocks, “more sustained consumer price inflation pressures are expected to build over time due to growing pressures on domestic manufacturing capacity and growing labor shortages.”

The Decision of the Bank of Canada on Monetary Policy

The Bank of Canada (BoC) is expected to keep its benchmark interest rates unchanged at 0.25 percent when it releases its next monetary policy update at 14:00 GMT on Wednesday. Economic developments since the June meeting imply the Bank of Canada will keep its positive tone while reducing its pandemic-era quantitative easing (QE) program from C$3 billion to C$2 billion.

The Bank of Canada is expected to keep its forward guidance for the first interest rate hike in the second half of 2022 in the accompanying policy statement. Aside from that, policymakers will present the most recent economic forecasts. At 15:00 GMT, there will be a news conference following the meeting.

Growth prospects for a significant adjustment in policy stance are minimal, implying that the outcome will not be a game-changer for the USD/CAD pair.