Canada overnight rate; Bank of Canada More likely to Dance to Hawkish Hymn

The Overnight Rate is the interest rate at which major financial institutions in Canada borrow and lend overnight funds among themselves.

Short-term interest rates are predominant factors in currency valuation. This is highly correlated with the economic outlook as its changes can impact both inflation and recession.

Two years into the COVID-19 pandemic, government responses still have gaps that fail to include some small businesses hit hardest by lockdowns and renewed restrictions tied to the Omicron wave, as Canadian restrictions to tackle COVID-19 will likely come at a cost of slower economic growth at the start of the year than other developed economies, notwithstanding that has not stopped investors from raising bets on interest rate hike.

With the Bank of Canada set to be the first major central bank to hold its first policy meeting of 2022, Experts are expecting an interest rate rise of at least 25 basis points to 0.5% which has remained at 0.25% after it was lowered from 1.75% in March 2020, as Senior economist Jean-Francois Perrault believes central Bank of Canada could be forced to act sooner than anticipated and forecast rate to hit 2% by the end of 2022.

The unemployment rate fell by 0.7% to 6.0% in November, as the annual inflation rate hit 4.8% in December the highest level in 30 years, which is having a two-pronged effect on businesses right now – rising cost and anticipated need to increase wages to cover inflationary pressure.

However, targeted government support programs boosted household incomes and enabled business recovery, providing stability and resiliency to the economy, even though, inflationary pressure, virus variants, and an uneven sectorial recovery pose short- and medium-term challenges to growth.

When interest rate (Overnight rate) is kept low, it encourages lending and investors trooping to banks to access the loans which will, in turn, be channeled into ventures that foster boom in the economy. This act can get cash flow steady and improve the overall economy.

Traders should brace themselves as surprise rate changes often have a great impact on the forex market, an increase in the interest rate will usually strengthen the Canadian Dollar (CAD) while lowering the interest rate will usually weaken the Canadian Dollar (CAD). The pairs to look out for during the news release include USDCAD, GBPCAD, EURCAD, CADJPY, CADCHF, AUDCAD, NZDCAD, etc.

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Time Schedule for Overnight Rate release:

Date: Wednesday, 26th January 2022

Time: 4:00pm (GMT+ 1)

Francis Idowu is a Forex Dealer, Financial market analyst and writer, Data Analyst, and Financial Market Strategist with a background in Economics. He specializes in market strategies, Forex fundamental and technical analysis, and has spent over two years as a financial market contributor, observer, and trading coach. He is well known for his informative analysis of the global economy, fiat currency, commodities, Stocks, Indexes, Futures, and Options markets. He held a Bachelor's degree in Economics and Diploma in Structured Programming and Data processing.