CAD has been rallying against several currencies in recent months, noticeably the USD which currently trades at 0.781. On the surface this would illustrate a stronger economy but it does in fact come with risks for a currency reliant on oil.

Since January of this year, the Loonie has strengthened 10 cents against the USD, triggered by higher oil prices and uncertain interest rate hikes, which the Fed has been promising since the end of last year.

Oil prices have been on an uphill trend since the beginning of April and have peaked at $41.61 which now raises questions as to how the BoC will tactically play the Monetary Report and Rate Decision this afternoon.

The BoC Interest Rate decision

Given the strength of the Loonie in recent weeks coupled with oil price peaks, expectations are that the BoC will downplay the economic situation as well as keep existing interest rates intact to reverse CAD strength. In any event, a weakening of CAD will keep oil exports thriving which is ideal for an economy heavily dependent on its oil exports.