Bank of Canada to remain on hold this year unless data allows a July hike - Rabobank

Analysts from Rabobank, expect no change in rates on Wednesday from the Bank of Canada and to remain on hold during 2018, although they warn about risks of a move in July if the data allows. 

Key Quotes: 

“We expect the Bank of Canada to leave the policy rate on hold at 1.25% on Wednesday 18th April. 20 of 23 analysts surveyed by Bloomberg expect no change and the OIS market implies an 18% chance of a 25bp hike.”

“Our base case is for no further tightening, we are cognisant that the July meeting represents a significant risk to our call. Indeed, the market is 72% priced for a hike in July and we expect the Bank will want to tighten again at that juncture but we doubt that data released in the interim will allow the Bank to move. In short, we think the Bank of Canada has had to ‘stop that’ (rate hikes), and in order to ‘start that’, it will need to ‘get that’ (better macro data).”

“We will also see the Bank’s latest forecasts in its second Monetary Policy Report of the year. Our forecast is for headline CPI inflation of 1.8% in 2018 and 1.9% in 2019 which stands in contrast to the BoC’s projections from the January Monetary Policy Report. That report pointed to CPI inflation of 2.1% both this year and next.”

“NAFTA remains a key risk but the market seems to be trading as if an agreement is likely to be forthcoming in the coming weeks and this remains our base case.”

“USD/CAD completed the head and shoulders formation we highlighted a few weeks ago which provided a target of 1.2508. USD/CAD touched a low of 1.2545 and has traded a range between that and the 200dma at 1.2625 over the past four sessions. Oil remains supportive.”