What To Expect From BoC? - Views From 12 Major Banks

The following are the expectations for today's BoC March policy meeting as provided by the economists at 12 major banks along with some views on trading CAD into the event as provided by the FX strategists at these banks.

Credit Suisse: We see an outside chance of a 25bp cut, but our base case is that it will occur in April. The rates market is pricing in a 25% chance for a cut, which implies that the currency is still likely to be volatile in either outcome. As such, we favor being long CAD vol into the decision, rather than taking a directional tactical view. We remain structurally bearish on CAD.

SEB: We expect unchanged rates at today’s central bank meeting. We would look to buy on a dip in USD/CAD. An April rate reduction looks increasingly likely.

Barclays: In Canada, we see risk that the BoC eases, or signals its intention to ease, more than what the market is currently expecting, posing downside risks to the CAD. We believe that without additional monetary easing, BoC estimates suggest growth could undershoot its baseline by 1.4pp over the next two years. We see this as indicating its intention to cut rates to offset the disappointment, and estimate that at least 50bp of cuts will be needed over the next 3-6 months, significantly more than current market pricing of 25bp over the next 12 months.

BofA Merrill: Following Stephen Poloz’s speech on 24 February, we expect the Bank of Canada to hold rates at the March meeting, rather than ease, which was our previous call. The FX market was pricing nearly an 80% chance of a 25bp cut in March, but post-Poloz only expects a 20% chance. Given existing short CAD positioning, we could see modest CAD strength if they leave policy unchanged, as we expect, but think the impact of the rate decision itself will be limited.

BNPP: We expect the BoC to follow the RBA in refraining from cutting rates, with the case for staying on hold more clear-cut following a positive Q4 GDP report and earlier from BoC Governor Poloz who said the Bank was willing to wait and monitor the impact of the January cut. Furthermore, with oil prices rebounding somewhat the immediate catalyst for a follow up easing move is lacking in our view. We continue avoid USDCAD but do see opportunities to be bullish CAD as the currency has not fully reacted to the improvement in yields as near-term rate cut expectations have been priced out.

Nomura: We continue to believe the BoC will need to cut rates later this year, but will leave them unchanged at tomorrow’s meeting.

Goldman: Whilst it remains very much a close call we believe the risk reward into today favours being long USD given the relatively low chance priced via rates (5bps). Moreover the underlying tone of the meeting should be very dovish given that the BoC will likely be mindful that we are yet to still yet to see the real first order impact of the fall in Oil on the data.

RBS: The Bank of Canada decision is due and we are against the consensus expecting a second consecutive 25bp cut by the Bank of Canada. While the GDP headline gain today implies the BoC may have more scope to leave rates unchanged at its meeting tomorrow, the underlying data suggest that there was a notable weakening in economic activity in the fourth quarter... This would be a surprise given current market pricing and leaves us expecting USD/CAD upside.

Morgan Stanley: Market expectations for the BoC today are firmly for an on-hold decision. Given that BoC Governor Poloz had played down the prospects of a further cut at this week’s meeting, staying on hold should not generate too much of a market reaction. Overall, we still believe that the Canadian economy is set to feel the second-round effects of lower oil prices and hence, we view USDCAD setbacks to the bottom end of the range as providing buying opportunities.

Credit Agricole: Both stabilising central bank rate expectations and relatively supported commodity price developments have been keeping CAD downside limited of late. However, still-muted domestic conditions as well as the risk of commodity price developments weakening more considerably anew should keep the likelihood of further policy easing from the BoC intact. Even if additional policy action as soon as this week appears unlikely, we expect the central bank to keep all options open. Even if the BoC appears unlikely to consider lower rates this soon, it is likely to keep all options open in terms of further policy action. As a result we remain of the view that the CAD should be sold on rallies, for instance against the USD.

Scotiabank: We expect rates to be on hold at 0.75%; there is no press conference or MPR, leaving only the statement to be digested. Markets are pricing only a minor chance of a rate cut this week; but are still maintaining a 78% chance of a rate cut this year.

UBS: Given the current levels of the Canadian dollar the current policy settings are likely to be maintained over the next two to three quarters. Also, with crude still lacking a price anchor it seems clear to us that the BoC should take no chances in the short term. The BoC is likely to stay on hold. Governor Poloz at present does not appear inclined to take out more 'insurance' cuts given the state of household debt.

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