Peter A Rosenstreich
Swissquote Bank Ltd
Markets have completely priced in a 25bp rate hike by the Bank of Canada by the end of 2017 leaving room for economic disappointment. We believe it’s too early for the BoC to be thinking about higher rates. With front-end yields at the near term high, we doubt that CAD will have much more upside. In the longer term, the weakness and sustained negative outlook for oil prices will likely drag Canadian growth and pressure inflation dynamics.
It was BoC Governor Poloz speech which included a hawkish signal shift that drove policy tightening expectations. Yet commodity weakness will force members to easy back on arguments for normalisation. While uncertainty over US economic policy and NAFTA renegotiations will linger, markets will be focused on today's Canadian inflation data for May.
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While this read fails to take into account crude sharp drops, it should help steer expectations. We suspect risks are asymmetrical, with significant downside should CPI disappoint and traders fade BoC hawkishness. Annual Core CPI is expected to come in at 1.4% from 1.3%. Although market sentiment on USDCAD is bearish, we remain constructive on pair.
This report has been prepared by Swissquote Bank Ltd and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Swissquote Bank Ltd personnel at any given time. Swissquote Bank Ltd is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.
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