USD/CAD to stay below 1.2700/50 as BoC is committed to fight inflation – ING

The Bank of Canada (BoC) is set to raise interest rates for a third consecutive meeting. Economists at ING expect 50 bp by the BoC today, but 75 bp is possible. Regarding the loonie, the USD/CAD pair is unlikely to climb above the 1.2700/50 region.

Strong macro picture means that a 75 bp move cannot be excluded

“50bp is our base case scenario for today, given the strong economy (and an outlook helped by high commodity prices) and jobs market, as well as elevated inflation. Against such a macroeconomic backdrop, we don’t exclude a 75 bp move.”

“As we see a 50 bp hike as more likely, there are some downside risks for CAD today, as markets may have to price some 10-20 bp out of the CAD swap curve.”

“We think that the BoC will reiterate a very strong commitment to fighting inflation and allow markets to consolidate their bets on at least another 50 bp hike in July and a terminal rate around 3.0%. Ultimately, this should put a floor under the loonie, and may not depreciate beyond the 1.2700/1.2750 area even if the 75 bp bets have to be scaled back today.”

See – BoC Preview: Forecasts from six major banks, hawkish hike