Currency markets are clearly anticipating the decisions of the Bank of Canada, which could have a strong impact on the movements of various currencies, especially the Canadian dollar pairs, particularly with expectations that the Bank of Canada will keep interest rates unchanged. Below is a look at what is expected from the Bank of Canada's decisions:

First: A look at the economic data affecting the Bank of Canada's decisions:
In the past period, many economic data were released in Canada that will have a strong impact on the bank's upcoming decisions. In this context, data released by the Canadian Statistics Office showed positive labor market data in the country during last January, as the Canadian economy added about 37.3 thousand jobs, which was better than market expectations indicating an addition of about 16.0 thousand jobs. At the same time, the unemployment rate in Canada fell to 5.7%, better than currency market expectations that had pointed to an increase to 5.9%.

Also, data released by the Canadian Statistics Office showed that the Canadian economy has recovered and recorded growth exceeding market expectations during the fourth quarter of 2023. According to the data, Canada's GDP recorded growth of 1.0% during the fourth quarter of 2023 year-on-year, exceeding market expectations that pointed to growth of about 0.8% only, after Canada's economy had contracted by 0.5% during the third quarter of last year.

On the other hand, data released by the Canadian Statistics Office showed that the Consumer Price Index in the country during last January recorded a negative reading lower than market expectations. According to today's data, the monthly CPI recorded stability at zero levels 0.0%, which is below expectations that forecast Canadian inflation growth of 0.4%. Also, data showed that the annual Consumer Price Index recorded about 2.9% during last January, which is lower than market expectations that forecast the index to record about 3.3%, after the index recorded a reading of 3.4% year-on-year during last December.

In light of the continued calmness of the high inflation pace, strength of Canadian employment data, and recovery of Canadian economic growth, the Bank of Canada may keep monetary policy unchanged, and may continue to keep it unchanged for a period of time awaiting the release of more economic data in the coming period.

Second: Expectations of some major banks for the Bank of Canada's decisions:
After official data showed a stronger slowdown in inflation in Canada than expected; economists at TD Securities investment bank revealed their expectations about whether the Bank of Canada is approaching a decision to cut interest rates. In this context, TD economists saw that Canadian statistics revealed a slowdown in annual inflation within Canada to 2.9%, which will reflect on the Bank of Canada's near-term expectations, enhancing the likelihood of an imminent rate cut; however, the Bank of Canada is still expected to move with a more cautious approach while awaiting more evidence before changing monetary policy.

Also, the CIBC investment bank addressed its expectations about the course of Canadian monetary policy during this year. In this regard, the Bank of Canada hinted at some signals about taking a decision to cut rates later this year but did not provide any data about the specific timing. Accordingly, the investment bank maintained its previous expectations that the Bank of Canada would begin cutting rates at the June meeting by about 25 basis points, with cuts totaling 150 basis points by the end of the year.

Third: The most important statements of decision-makers within the Bank of Canada regarding monetary policy
In the past period, some statements were issued by the Bank of Canada's policymakers, most notably the Governor, who confirmed that there is still more time to ease remaining price pressures, and that the central bank's monetary policy is working; demand has decreased, the Canadian economy has rebalanced, and inflation has also decreased.

The Governor of the Bank of Canada added that house prices in Canada have only declined modestly as a result of the Bank of Canada's rate hikes, considering recent years that witnessed supply shortages and an increase in the number of newcomers, and that discussions within the Bank of Canada have shifted from whether monetary policy is restrictive enough to how long the Bank of Canada will maintain its current tightening approach.

Fourth: Expected scenarios for the Bank of Canada's decisions:
The first scenario involves the Bank of Canada keeping interest rates unchanged to stabilize rates at 5.0%, and thus markets will monitor the interest rate statement and the Governor’s remarks, which may include hints about easing inflationary pressures and approaching rate cuts. This scenario might have a negative impact on Canadian dollar trades, especially the USD/CAD pair.

While the second scenario involves the Bank of Canada continuing to raise interest rates, expressing concerns about the strength of conditions in the Canadian labor market which could reinforce inflationary pressures again, stating that it will monitor upcoming economic data and is ready to raise rates again. This scenario, if it occurs, may have a strong positive impact on Canadian dollar movements in the currency markets.