Rumors have been mounting steadily regarding the upcoming interest rate decision by the Bank of Canada (BOC), due at 13:00 GMT. It appears that a number of analysts have begun to expect an increase in value for the loonie even if the BOC decides to keep rates steady. Can this be?

Monetary policy decisions are complicated matters which weigh multiple factors of economic growth and future prospects. When a central bank acts, it typically does so cautiously. Should the BOC hold rates steady it may not necessarily be due to any inherent weakness, or foreseeable danger for the Canadian economy, but rather a fear of being the first major economy to hike rates, especially during a period of rampant risk aversion.

In this case, a decision to keep rates where they are is not necessarily a danger to the value of the CAD. Also, the subsequent rate statement should help further a natural sell-off of the USD/CAD, helping raise the value of the loonie in the immediate aftermath. The speculation is that this pair is heading downward unless a sudden burst of risk aversion emerges once more, or if market sentiment declines, which both seem less likely given recent news from the region.