Explore The Opportunity Trading the Canadian Overnight Rate, 4.5% Interest Rate Hike Anticipated

The overnight Rate is the interest rate at 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 toward attaining its policy objectives. The three of its core monetary policy goals are maximum employment, Price Stability (inflation normalization), and Moderate long-term interest rates.

Lately, a report from Statistics Canada revealed that its annual inflation rate slowed to 6.3 percent in December 2022, its lowest level since February 2022. The decline in the cost of living was driven by a 13 percent decrease in the price of gasoline, the biggest one-month drop since April 2020.

However, the 6.3% current inflation hit is below the Bank of Canada target range of 2 percent. This could reinforce the case for an interest rate increase by 25bps basis points because the job of returning the underlying inflationary pressures toward the target is yet to be achieved

According to the economic analyst, the interest rate is forecasted at 4.5 percent against 4.25 percent previous.

Currently, the job market is accelerating speedily and could possibly hold stronger than the previous hike cycles. Its GDP (Gross Domestic Product) growth is higher than the economic forecast of 0.5% q/q. 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)

Chart indicating Canadian Dollar Index Technical Outlook

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 which include the Canadian dollar, are mostly affected by the data release. They include USDCAD, GBPCAD, EURCAD, CADJPY, CADCHF, AUDCAD, NZDCAD, USOIL, etc.

Time Schedule for the Canadian Overnight Rate release:

Date: Wednesday, January 25th, 2023.

Time: 4:00 pm (GM + 1)

Amogo Solomon is a Broker-Dealer/Market Research analyst and writer in ACT Brokers with a background in Computer Science, Data Analytics, and Forex Broker Dealing. He specializes in Forex Dealing, markets Analysis, Currency research, forex fundamental and technical analysis, and Monitoring of Forex trends, Stocks, Equities, Cryptos, and Commodities. He possesses strong technical and analytical skills and is well known for his entertaining and informative analysis of the global economy, fiat currency, commodities, Stocks, Indexes, Futures, and Options markets. He held a Bachelor's degree in Computer Science and Nanodegree in Programming for Data Science Enterprise.