MUFG Research discusses the expectations around this week's BoC policy decision.
"If the BoC delivers a 25bps hike this week as expected, then market participants’ focus will be on the updated policy guidance. The BoC will have to deliver a strong signal that they are seriously considering pausing rate hikes to back up market pricing for no further hikes beyond 4.50%.," MUFG notes.
"If the BoC signals it is considering pausing their rate hike cycle, we would expect the Canadian dollar to weaken further alongside the US dollar at the start of this year. It could also have a negative spill-over impact on the US dollar by reinforcing market expectations that the Fed is getting close to the end of their rate hike cycle too. In these circumstances, the latest BoC policy update may attract more wider market attention than normal," MUFG adds.