BoC Preview: Any benefit for CAD from a rate hike is unlikely to be sustained over the medium term – MUFG

FXStreet Insights Team FXStreet

Economists at MUFG Bank analyze CAD's outlook ahead of the Bank of Canada decision.

USD/CAD seen higher in 2024 as economic weakness is more pronounced in Canada than elsewhere

After a long pause the BoC in June hiked again and market pricing implies a 75% probability of another hike today. We remain unconvinced of the need to move. Yes, the jobs market was strong (59.9K increase in employment vs 20K expected) but wage inflation was weak with the hourly wage YoY rate falling from 5.1% to 3.9%. Does the BoC need to hike with the core Median YoY CPI rate down at 3.9% with further tightening still to feed into the real economy?

Any benefit today for CAD from a rate hike is unlikely to be sustained over the medium term.

We now forecast little change in USD/CAD through to year-end even as the Dollar weakens across G10 and then see USD/CAD higher in 2024 as economic weakness is more pronounced in Canada than elsewhere.

See – BoC Preview: Forecasts from eight major banks, enough evidence to pull the trigger on another 25 bps rate hike

Author

FXStreet Insights Team

FXStreet

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

EUR/USD looks weak below 1.1800

EUR/USD has slipped back under pressure, breaking through the 1.1800 support and drifting towards the weekly lows near 1.1770 ahead of the opening bell in Asia. The move reflects renewed strength in the US Dollar, with steady geopolitical tensions keeping its demand firm. Moving forward, the release of the German labour market report and flash inflation figures should keep European investors entertained on Friday.

GBP/USD threatens the 200-day SMA near 1.3440

GBP/USD rapidly leaves behind Wednesday’s strong advance, coming under heavy pressure and retesting the 1.3440 zone, where the critical 200-day SMA is located. Cable’s deep pullback follows the strong gains in the Greenback, while investors continue to pencil in a potential BoE rate cut in March.

Gold trims gains, slips back to around $5,170

Gold is now facing some downside pressure, hovering around the $5,170 region on Thursday. The yellow metal surrenders part of its earlier gains on the back of the resurgence of the buying interest in the Greenback. In the meantime, geopolitical tensions in the Middle East continue to limit the downside potential for now.