Giles Coghlan LLB, Lth, MA
Financial Source
The BoC delivered a hawkish surprise at its last meeting. It increased rates by 50 bps as expected, but it increased the terminal rate to 2.5% from 2.25%. The BoC did this in order to show its growing worries about rising inflation. It announced the start of quantitative tightening too which is effective from April 25, but Governor Macklem said that the bank will not be yet actively selling bonds as part of the QT.
Governor Macklem on the interest rate level
BoC’s Governor Macklem stated in the press conference that the BoC may need to take rates modestly above the 2.5% neutral rate for a period of time. However, he also said that if inflation moderates then it could be appropriate to pause hikes once the BoC gets close to neutral. So, the BoC is setting up markets for a flexible and adaptable approach.
Inflation
Inflation data is key. The last Canadian inflation print came in very hot at 6.7% y/y vs the 5.7% prior reading, so that does keep the pressure on the BoC to hike rates. However, with short-term interest rate markets pricing in over 8 rate hikes this year, we could be near peak bullishness for the CAD. If you remember, in April 2021, October 2021, and January 2022 markets aggressively priced in CAD upside only to see it rapidly reverse. If we see the same response again the CAD could retrace heavily.
The takeaway
EURCAD longs potentially look attractive from here, but the technicals are tricky. If the ECB is forced to hike rates to deal with rising inflation in June or July then the Euro could make up some ground against the CAD. However, the risks are that the CAD strength continues, especially if oil markets show more strength on Russian/Ukraine risk. 1.3600 could be good for EURCAD longs as risk can be placed underneath 1.3500.
Our products and commentary provides general advice that do not take into account your personal objectives, financial situation or needs. The content of this website must not be construed as personal advice.
Recommended Content
Editors’ Picks
EUR/USD retreats toward 1.0850 on modest USD recovery
EUR/USD stays under modest bearish pressure and trades in negative territory at around 1.0850 after closing modestly lower on Thursday. In the absence of macroeconomic data releases, investors will continue to pay close attention to comments from Federal Reserve officials.
GBP/USD holds above 1.2650 following earlier decline
GBP/USD edges higher after falling to a daily low below 1.2650 in the European session on Friday. The US Dollar holds its ground following the selloff seen after April inflation data and makes it difficult for the pair to extend its rebound. Fed policymakers are scheduled to speak later in the day.
Gold climbs to multi-week highs above $2,400
Gold gathered bullish momentum and touched its highest level in nearly a month above $2,400. Although the benchmark 10-year US yield holds steady at around 4.4%, the cautious market stance supports XAU/USD heading into the weekend.
Chainlink social dominance hits six-month peak as LINK extends gains
-637336005550289133_XtraSmall.jpg)
Chainlink (LINK) social dominance increased sharply on Friday, exceeding levels seen in the past six months, along with the token’s price rally that started on Wednesday.
Week ahead: Flash PMIs, UK and Japan CPIs in focus – RBNZ to hold rates
After cool US CPI, attention shifts to UK and Japanese inflation. Flash PMIs will be watched too amid signs of a rebound in Europe. Fed to stay in the spotlight as plethora of speakers, minutes on tap.