CAD: Data warrants a Bank of Canada rate hike today, NAFTA risks may not - ING
|According to Viraj Patel, Foreign Exchange Strategist at ING, the Bank of Canada is set to hike rates by 25 basis points today but the real driver will be the central bank's assessment for the economic outlook amid growing concerns over the future of the NAFTA free trade agreement.
Key quotes:
“With markets all but pricing in a 25bp BoC rate hike today (1500 GMT), we see the key driver for CAD as being the propensity for further tightening amid rising NAFTA break-up risks. A hawkish hold today is a non-trivial risk, though with net exports not an integral part of the BoC’s positive outlook – and other areas of the economy firing on all cylinders – a 25bp hike today is the most likely outcome. Governor Poloz may keep a non-committal and laissez-faire tone – and the risks are that investors view this as a dovish hike, with the CAD rate curve flattening slightly as sentiment for further BoC tightening eases a bit.”
“With the Fed on a pre-set course, BoC policy dynamics hold the key to USD/CAD over the coming months. Based on our scenario model simulations, the risk-reward implies not chasing the BoC rate hike story today; with a 100bps worth of tightening priced in over a 2-year horizon, it's hard to imagine much further upside and at best USD/CAD runs down to 1.2350 in a hawkish hike scenario. Yet, the tail risk of a hawkish hold could see a widening of US-Canadian interest rate differentials and initiate a CAD sell-off to 1.2650. We still think USD/CAD is on a path to 1.20; getting there may be a post-NAFTA-resolution story (2H18).”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.