Preview of the Bank of Canada interest rate decision on Oct 21, 2015
What time is the decision? 10 am ET (1400 GMT)
What's expected? 26 of 27 economists are looking for no change in the BOC's 0.50% overnight rate with one (Credit Agricole) looking for a quarter-point cut.
What's priced in? The OIS shows a 6% chance of a cut tomorrow with the chance rising through the third quarter of next year.
What else will be released? Along with the decision, the BOC releases its quarterly Monetary Policy Report, which includes its latest economic projections for Canada and abroad.
Is there a press conference? Yes, at 11:15 am ET (1515 GMT) Governor Poloz holds a press conference.
What the Bank of Canada decision means for the Canadian dollar
There is little drama in terms of rates in Wednesday's decision and the election win by the Liberal Party is a non-factor for near-term monetary policy but it removed some tail risk of a hung parliament and that's CAD positive today.
Oil, as always, is a main driver for the loonie and the Canadian economy. Crude prices fell about 1% on Tuesday and erased an earlier gain.
The main thing to watch is a change in the language from the most-recent Bank of Canada statement. The main guidance is always near the end of the text and currently strikes a generally neutral tone with "the Bank judges that the risks to the outlook for inflation remain within the zone for which the current stance of monetary policy is appropriate."
Economic projections
The BOC expects growth to pickup for the remainder of the year and remain strong in 2016. If these forecasts are lowered, it implies a higher chance of a rate cut. The BOC manages policy via the 'output gap' which is essentially measure of growth versus potential growth.
CPI forecasts are also important but the BOC tends to look through changes due to oil prices and FX, which are major drivers at the moment.
Risk of CAD strength
I see the risks tilted toward a rise in the Canadian dollar on Wednesday (USD/CAD weakness). In his recent comments, Poloz has been optimistic about China, Canadian growth and even the outlook for the US.
The pattern with Poloz is that he is Mr. Optimistic until he's confronted with disappointing growth numbers; then he cuts rates.
My trade is an outright CAD long against a variety of currencies. The risk of a miss is that he gets cold feet about the US economy and expresses some worries; something that would lead to CAD selling.
