Overnight Rate is the interest rate in which the major financial institutions in Canada borrow and lend overnight funds among themselves.
For decades, the Bank of Canada has used the interest rate as a strong driver towards attaining its policy objectives. The three of Its core monetary policy goals are maximum employment, Price Stability and Moderate long-term interest rates.
Promote Maximum employment: Lately, a report from the Canadian Ministry of Labour revealed that Employment grew 94,000, indicating 0.5% jobs add up and the unemployment rate leveling down to 7.8% from the 8.2% previous. Though the growth trajectory was impressive, but the job market is still thriving below the pre-pandemic state and more is required to keep the economy resilient and higher.
Price stability: Its second objective is to maintain price stability by keeping inflation within its optimal range of 1 to 3 percent with a 2 percent mid target point. During the administration of John Crow as the Governor of the Bank of Canada between 1987 -1994, there was a global recession and the unemployment rate grew 11%. Series of advanced world Central Banks find it innovative to appropriate inflation targeting and Bank of Canada keyed into it at early days. In the 1991 federal budget, the former Minister in Finance Michael Wilson endorsed the Bank of Canada’s first inflation-target set of 2%.
Currently, the inflation figure stays high above the BOC’s target, however, there is a hitting argument that the inflation rise is transitory and majorly influenced by factors such as energy and food prices. So, BOC interest rate hike should be put on hold till full recovery.
Moderate Long Term Interest Rate: The BOC is in a very tight spot and the comparative growth outlook with the April forecast is slightly lower than the projection. The Bank of Canada Governing Council in a meeting elaborated on “the amount of slack in the economy and the potential growth”. In line with the narrative, monetary policy has to remain accommodative by keeping interest rates unchanged or maintained relatively low and consolidate on the quantitative easing program.
There is speculation of further growth and broad prospect in the subsequent month as retail sales increase, investment expands and foreign demands lift export. According to Trading Economics, Global macro models and Analyst, The Gross Domestic Product is projected to reach 1670.00USD billion by 2021 ending and trend around 1740.00 USD Billion in 2022.
Across-board, Lower Overnight Rate will provide a boost to the broader economy by improving cash flow, encouraging spending and investment, which will increase economic activities and boost employment.
Regardless, traders should brace themselves up for a period of high volatility as the Overnight Rate report often has a great impact on the FOREX market. An increase in Overnight Rate will usually strengthen the Canadian Dollar (CAD), while its decrease will usually weaken the Canadian Dollar (CAD)
Traders should always be aware that volatile markets provide great opportunities for making profits, as the increase in volatility can cause market swings for traders to capitalize on.
The currency pairs that include the Canadian dollar, are mostly affected by the data release. They include USDCAD, GBPCAD, EURCAD, CADJPY, CADCHF, AUDCAD, NZDCAD, etc.
Time Schedule for the Canadian Overnight Rate release:
Date: Wednesday, September 8th, 2021.
Time: 3:00 pm (GM + 1)
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