Financial markets are awaiting the decisions of the Bank of Canada today, Wednesday, especially with expectations of a significant cut in the Canadian interest rate during this meeting. This could have a strong impact on the movements of various currencies, especially the Canadian dollar and its pairs.

Here is an overview of what is expected to be announced by the Bank of Canada:

First: A look at the economic data affecting the decisions of the Bank of Canada:

Recently, several economic data were released in Canada that will have a strong impact on the upcoming decisions of the bank. In this context, Statistics Canada released labor market data, which turned out to be extremely positive and better than market expectations.

According to the data, Canada added around 46.7 thousand jobs in September, which was better than expectations that indicated Canadian economy would add about 29.8 thousand jobs. At the same time, the unemployment rate in Canada dropped to 6.5%, which is better than market expectations that had anticipated an increase in the unemployment rate to 6.7%.

Additionally, Statistics Canada released inflation data for September, which was disappointing and negative compared to market expectations. The data showed a monthly inflation contraction of 0.4%, which is more than expectations that indicated a contraction of 0.2%. The previous reading for August recorded a contraction of 0.2%. Year-on-year, the data showed a slowdown in the growth of the Consumer Price Index to 1.6% in August, which was also lower than market expectations that anticipated a slowdown to only 2.0%.

Furthermore, the data from Statistics Canada indicated positive retail sales data for the country for August, as retail sales in Canada grew by 0.9% month-over-month, which was higher than market expectations that forecasted a growth of about 0.5%. Also, the core retail sales index - excluding vehicle sales - recorded a growth of 0.4% during August, which was better than market expectations that indicated a growth of 0.2%.

In light of the positive Canadian labor market data, alongside the retail sales data, and on the other hand, the weak inflation data during September, the Bank of Canada will not hesitate to cut interest rates. However, the pace of the rate cut is what the markets will be monitoring, especially since it will be reflected in currency movements.

Second: Predictions from some major banks regarding the Bank of Canada's decisions:

Most forecasts indicate that the Bank of Canada will cut interest rates during the upcoming meeting. In this context, Bloomberg News reported that economists and markets expect the Bank of Canada to lower the key interest rate by half a percentage point to 3.75% during its announcement of the interest rate.

Additionally, Jim Thorne, chief market strategist at Wellington-Altus Private Wealth, mentioned in an interview with BNN Bloomberg that he also expects a cut of 50 basis points, adding that a cut of 75 basis points would cause panic among people.

Moreover, CIBC expects the Bank of Canada's interest rate to settle at 2.25% by the end of 2025, while BMO and TD Bank anticipate a more modest decrease in the Canadian interest rate to 2.50%. Meanwhile, Scotiabank expects a much smaller easing from the Bank of Canada, predicting the interest rate to drop to 3.00% by the end of 2025.

Third: Statements from decision-makers at the Bank of Canada regarding monetary policy:

Recently, some statements were issued by monetary policymakers at the Bank of Canada. The Deputy Governor of the Bank of Canada, Tiff Macklem, stated that trade disruptions could mean greater deviations from the inflation target and that trade disruptions increase inflation volatility.

Additionally, the bank's governor emphasized that the Bank of Canada must focus on managing risks and balancing the upside risks of inflation with the downside risks of economic growth. He noted that global commodity costs may not decline, which could increase upward pressures on inflation.

Moreover, Bank of Canada Governor Tiff Macklem, speaking in Toronto during a conference on artificial intelligence, stated that the adoption of artificial intelligence by companies could increase price pressures in the short term by boosting demand, although its full effects would not be clear any time soon.

Fourth: Expected scenarios for the Bank of Canada's decisions:

The first scenario involves the Bank of Canada cutting interest rates to settle at 3.75%. Thus, the markets will monitor the interest rate statement and the bank governor's remarks, which may include hints about the continuing calm of inflation pressures and more interest rate reductions in the upcoming period. This scenario could have a negative impact on the trading of the Canadian dollar, especially the CAD/USD pair.

In contrast, the second scenario involves the Bank of Canada opting to cut interest rates while warning against the return of inflation rising again, stating that it will monitor upcoming economic data and will not proceed with further interest rate cuts soon. If this scenario occurs, it could have a strong positive impact on the movements of the Canadian dollar in currency markets.