Share:

At the last meeting, the Bank Of Canada’s Governing Council said that it, ‘will be considering whether the policy interest rate needs to rise further to bring supply and demand back into balance and return inflation to target’. This was hinting that the BoC could have in fact reached the terminal rate with that surprise 50bps hike. This was why the CAD sold off out of the meeting as the BoC tried to warn that it may have done enough.

However, since December’s meeting expectations have edged up that the BoC will have one more 25bps hike left to take. At the end of last week, Short Term Interest Rate markets saw the terminal rate at around 4.50% for June this year and 2 cuts before the end of the year.

Chart

STIR markets put the probability at 65% that the BoC will hike by 25bps and a 35% probability that it will not make any changes to rates. Economists surveyed by Reuters all see the BoC hiking by 25bps, so that is the base expectation.

Headline inflation fell last week to 6.3% y/y from 6.4% expected, but the Trimmed mean edged higher than expectations to 5.3% from 5.2% expected. The trend is lower for inflation-run Canada with the headline following a step-by-step falling pattern, but still way above the 2% target.

Chart

The PPI print last week moved nicely lower and raw materials dropped to 7.5% from the 13% expected, so inflationary pressures are broadly falling. However, December’s jobs data was strong with unemployment falling to 5% from the 5.2% expected and a big boost of full-time workers of 84.5K vs the expected fall of -10k. So, another 25bps rate hike seems reasonable.

Trading the decision

Here are the ways that the CAD could move depending on the decision:

  • No rate change. Expect immediate CAD weakness and USDCAD buying would make sense as markets re-price the missed economic and STIR market expectations.

  • A hike, but explicit guidance that the BoC has finished. This again would likely see CAD weakness.

  • As expected print with unclear/vague forward guidance. Much harder to call the CAD’s direction and not a tradable outcome.


Learn more about HYCM

Share: Feed news

High-Risk Investment Warning: Contracts for Difference (‘CFDs’) are complex financial products that are traded on margin. Trading CFDs carries a high degree of risk. It is possible to lose all your capital. These products may not be suitable for everyone and you should ensure that you understand the risks involved. Seek independent expert advice if necessary and speculate only with funds that you can afford to lose. Please think carefully whether such trading suits you, taking into consideration all the relevant circumstances as well as your personal resources. We do not recommend clients posting their entire account balance to meet margin requirements. Clients can minimise their level of exposure by requesting a change in leverage limit. For more information please refer to HYCM’s Risk Disclosure. *Any opinions made in this material are personal to the author and do not reflect the opinions of HYCM. This material is considered a marketing communication and should not be construed as containing investment advice or an investment recommendation, or an offer of or solicitation for any transactions in financial instruments. Past performance is not a guarantee of or prediction of future performance. HYCM does not take into account your personal investment objectives or financial situation. HYCM makes no representation and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast, or other information supplied by an employee of HYCM, a third party, or otherwise. Without the approval of HYCM, reproduction or redistribution of this information isn’t permitted.

Follow us on Telegram

Stay updated of all the news

Join Telegram

Recommended Content


Follow us on Telegram

Stay updated of all the news

Join Telegram

Recommended Content

Editors’ Picks

AUD/USD finds buyers near 0.6950 amid subdued US Dollar

AUD/USD finds buyers near 0.6950 amid subdued US Dollar

AUD/USD is defending the 0.6950 support amid a broadly subdued US Dollar so far this Wednesday. US President Joe Biden's annual State of the Union speech fails to yield any relevant market reaction. US data and Fedspeak coming up next. 

AUD/USD News

EUR/USD grinds higher past 1.0700 even as US President Biden’s SOTU sounds tough on China

EUR/USD grinds higher past 1.0700 even as US President Biden’s SOTU sounds tough on China

EUR/USD floats around 1.0725-30 after snapping a four-day downtrend as the pair traders struggle to believe in the hawkish comments from US President Joe Biden’s State of the Union (SOTU) speech.

EUR/USD News

Gold eyes $1,880 as investors digest Powell’s guidance and Biden’s SOTU

Gold eyes $1,880 as investors digest Powell’s guidance and Biden’s SOTU

Gold price (XAU/USD) is aiming to capture the immediate resistance of $1,880.00 in the Asian session. The precious metal rebounded after dropping to near $1870.00 and is expected to add gains ahead as the risk appetite of the market participants is improving.

Gold News

Why Cosmos price is likely to rally toward $17 in February

Why Cosmos price is likely to rally toward $17 in February

Cosmos price continues to display strength as the uptrend seems unfazed by investors who may be taking profit off January's 70% gain. Considering the overall bullish stance in the crypto market, a 15% rally from today’s market value is a conservative estimate.

Read more

Soft landing, hard landing, no landing?

Soft landing, hard landing, no landing?

The Dollar has started the year on a soft footing on the view that the Fed can respond to a soft US landing, as the Rest of the World recovers. The recent run of data, especially out of the US, questions whether the Fed needs to cut rates at all.

Read more

Majors

Cryptocurrencies

Signatures