What are the two central banks deciding?
The Bank of Canada goes first. The market is pricing in a 25 basis point rate hike. That is 0.25 of a percentage point. The consensus is 2.5% versus the previous 2.25%.
Irregular schedule. BoC meetings follow an irregular schedule. That is why each decision hits the Canadian dollar harder than usual.
The Fed wraps up its two-day meeting. Here is what the numbers from CME FedWatch show:
- 3.75-4.00% - the corridor in which the rate is highly likely to be left at this meeting
- above 80% - the chance of another hike in December
- press conference - particular attention to the words of Fed Chair Kevin Warsh
CME FedWatch is a service that calculates the probabilities of rate decisions from futures prices. The dates of both decisions are in the economic calendar.
Why is the dollar rising?
Two things are holding up the dollar: bets on a December hike and geopolitics.
- US warning. The Wall Street Journal writes that the US has warned a number of Arab Gulf states about a possible short military campaign against Iran after the midterm elections on November 3.
- Strike on Saudi Arabia. The Houthis claimed a direct hit by a ballistic missile on Saudi Arabia's Ministry of Defense in Riyadh.
- Oil bounced back. The rise came after a two-day correction from a multi-month high. For CAD this is, on the contrary, support.
What is the backdrop for other instruments?
- DXY around 102.50 - the dollar index
- USD/JPY above 157.50 - ahead of the Fed and the Bank of Japan
- AUD/USD reached 0.7050 - after strong inflation in Australia
- Gold pulled back - from a weekly high near $4,070
What does this mean for a trader?
Two volatility scenarios, without betting on direction:
- Scenario A. The BoC delivers the expected 25 points, the Fed does not surprise. The move in USD/CAD is short, within the 1.4036-1.4095 levels.
- Scenario B. Any divergence from consensus at at least one of the two central banks. The range widens to 1.4134-1.4173 on the upside or toward 1.3968 on the downside.
The main point: two decisions in one day is a volatility risk, not a ready-made direction. For such a regime it is worth choosing a challenge in advance.
What happens next?
Thursday. The preliminary US GDP for the third quarter and the PCE price index are released.
PCE is the price measure the Fed looks at first.
Will you be sitting in USD/CAD at 16:45 and at 21:00?
Two rate decisions in one day is not one trade, but three windows with broken spreads. The main problem here is not direction, but the rulebook. Some prop firms explicitly prohibit holding a position at the moment a central bank decision is released. Another cuts leverage on CAD 15 minutes before publication, a third calculates drawdown by the maximum within the day - and a news wick closes the account while the stop is still alive. These lines are read in advance, not in the support chat the next morning. Selecting by your market and style takes a minute.