What To Expect From BoC? - Views From 20 Major Banks

The following are the expectations for today's BoC April policy meeting as provided by the economists at 20 major banks along with some thoughts on the CAD into the event as provided by the FX strategists at these banks.

Goldman: We expect rates on hold but for the BoC to emphasize downside risks to growth.

Barclays: The BoC is expected to stay on hold at Wednesday’s meeting with the market consensus and the OIS curve indicating no change. In recent comments, Governor Poloz has acknowledged the weakness in Q1 and so the fact that the data have reflected this is not news to the BoC. However, with the MPR also expected next week, the BoC’s forecasts will get a lot of attention. We have highlighted in the past that the full effect of the oil price shock is yet to be reflected in the BoC’s forecasts (lower growth and inflation profiles) or their forecasts already indicate their intention to cut rates significantly. Either way, with less than 1 rate cut priced over the next year, we think there remains significant scope for re-pricing (we expect at least 50bp over the coming six months). A rate cut at this week’s meeting remains an outside risk and we stay long USDCAD spot.

Deutsche Bank: Our Canadian economist expects the Bank to leave its overnight rate at 0.75% (as does the market), despite what appears to have been a very weak Q1 for the Canadian economy. We will be interested to see to what extent the door is left open to future rate cuts.

LIoyds: the Bank of Canada is expected to keep interest rates on hold at 0.75%, with the Monetary Policy Report likely to reflect a downgrade to GDP growth projections.

Westpac: Bank of Canada will publish it rates decision with more focus on the accompanying report and press conference. Those looking for a more dovish Poloz might be disappointed by steady as she goes neutral stance. WP's view is that we would see 1.2100 before 1.3000 and still look for a clearout of long usdcad positioning. Part of that equation linked to crude.

Credit Suisse: We expect the BoC to be on hold at 0.75%, in line with consensus. Even though the data of late have not been particularly constructive, we think there is not yet enough evidence to suggest that the economic outlook has deteriorated more than the BoC expected when it first cut rates in January. We remain bearish on CAD, but think that due to strong topside positioning in USDCAD, the market will need to see a dovish surprise from the BOC or a clear sign of a breakdown in oil prices to push USDCAD through the 1.2836 high it established in mid-March.

Standard Chartered: At this point consensus looks to be no change from the current 0.75% rate, but Poloz has surprised before and the tone of his statement will be extremely important as well of course. So we can expect $CAD to be very volatile. Please attached our latest piece on BOC.

Citi: We expect the BoC to take a lightly dovish tone relative to market expectations tomorrow. This should be somewhat CAD negative, but we are painfully aware that the continued run of poor USD data may overwhelm the isolated impact of BoC.

Morgan Stanley: he BoC this week will update its forecasts and therefore will likely provide some USDCAD volatility. We like to buy USDCAD on larger dips but still take a cautious approach.

UBS: Market expects BoC to leave the current policy settings unchanged, given the current levels of the Canadian dollar and the March labour report. Also, with crude still lacking a price anchor and inflation still at lower level of bank's band BoC should take no chances in the short term. Governor Poloz at present does not appear inclined to take out more 'insurance' cuts given the state of household debt. Consensus expects prices to have increased by 0.50% m/m (prev. +0.9%m/m)

BNPP: Markets are pricing in only a few basis points of easing and surveyed economists, including our own, are unanimously calling for unchanged rates. This also implies however that the risk is for a more dovish reaction if the BoC once again surprises with a cut, or stays on hold but signals easing options remain on the table as it updates its macroeconomic projections in the Monetary Policy Report. With our commodity strategists looking for another leg down in oil prices, we expect the BoC to eventually cut by September.

BTMU: Today, the Bank of Canada will hold its regular meeting and release its quarterly Monetary Policy Report. We like the majority of the market do not expect any additional monetary easing today. While the data from Canada has certainly highlighted the negative hit to the economy from the drop in crude oil prices, the flow of data hasn’t been as bad as many had feared and we suspect that’s a message we may get today from the BOC. So we would be inclined to say that the BOC will convey a message more along the lines that the “insurance” rate cut in January served the economy well in limiting the degree of downturn. This of course would imply that perhaps the January cut was a one-off.

CIBC: All eyes will be on the Bank of Canada’s statement and policy report for clues on whether the Bank is likely to cut rates again, but we share the consensus view that for now it’s going to be a wait and see stance. February data for manufacturing shipments should see further damage after a sharp January dip, given what we saw in real exports for such goods that month. Retailing, in contrast, was so weak the prior month that we’re due for at least a partial rebound, particularly ex-autos. Core inflation could nudge down a tick, but it’s still at, rather than below, the BoC’s 2% target.

SEB: In Canada the “insurance” cut has had larger positive effects than expected according to Governor Poloz and oil prices has recovered somewhat which bodes for unchanged rates today. The monetary policy report released with the rate decision is highly interesting containing fresh forecasts and hopefully more details on the positive effects from the Jan rate cut.

SocGen: Wednesday's BOC decision loomks like a sure-fire nop-move. The 1.24-1.28 range probably holds and with iron ore prices still soft, there is more to be gained by selling AUD than CAD for now

BofA Merrill: We expects the BoC to hold rates at their April meeting after months of hinting that the bar for a near-term move is high. The BoC will likely toe the party line that a factory recovery will offset the energy-sector drag later this year. Although the BoC could cut its 1Q GDP growth forecast to 0.5% from 1.5% in the MPR, they will likely boost growth in later quarters. That would keep the timing of the closing of the output gap unchanged, suggesting no reason to ease policy at the April meeting. Ultimately, we recommend fading USD/CAD weakness post-BoC. We do not see the BoC cutting rates until 4Q15, but risks remain on the downside to the economic outlook with the energy shock giving the FX market comfort in maintain its short CAD position. Additionally, the next leg higher in USD/CAD will be largely driven by US news/dataflow. Given the extreme winter, we expect data to turn up in coming weeks as data uninfluenced by bad weather are released.

Nomura: We believe the BoC will leave its policy rate unchanged and maintain a neutral policy stance. "However, the main event at the meeting will be the release of the April Monetary Policy Report (MPR), which will contain an update of the BoC’s forecast. We expect some downside revisions to growth, mainly in H1 2015. The forecast for total inflation is likely to be revised slightly higher, while the forecast for core inflation is likely to be roughly unchanged. We believe it will again cut in coming months, but the timing depends on incoming data. These are the key aspects to focus on: 1) oil prices, 2) household debt levels, 3) the performance of non-energy exports and 4) signs of contagion from the oil sector and regions to other sectors and regions. We also continue to believe that the most likely timing for the next rate cut will be at the July meeting.

Credit Agricole: while a BoC rate cut is not necessary to spark a renewed rise in USD/CAD, it would certainly help. CAD’s move lower has dovetailed nicely with the decline in Canada’s data surprise index. While we expect the BoC to keep its powder dry at this week’s meeting, a downgrade to its forecast in the Monetary Policy Report could encourage bets of fresh easing in Q2 or Q3.

Scotiabank: Markets are pricing a small chance of an interest rate cut, which we do not expect to materialize; however for USDCAD the direction is likely to come form the more detailed MPR and comments from Governor Poloz. We expect USDCAD to range trade in the near‐term, to remain correlated with oil prices and in tandem with the broad USD move higher, to be at risk of a temporary upside break (CAD weakness).

RBS: The Bank of Canada’s April decision includes a fresh Monetary Policy Report, including new forecasts for growth and inflation, and a press conference by BoC Governor Poloz. We expect the BoC will leave rates on hold next week, though we see dovish risks to the commentary and forecasts as the first quarter appears to have slowed more than the BoC expected and the recent moderation in US growth may imply a lower conviction that 2Q CAD data will bounce back. We think that the economic impact of the oil price shock is likely to be more far reaching than priced in and we retain a bearish CAD view.

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