CAD: Positive momentum disrupted by the BoC’s Monetary Policy Report - MUFG

Derek Halpenny, European Head of GMR at MUFG, suggests that the positive momentum for CAD has been disrupted by the BoC’s update Monetary Policy Report on Wednesday that clearly signalled greater risks of additional monetary easing going forward.

Key Quotes

“We now think the BoC will ease its monetary stance at its next meeting on 7th December given the views expressed in the report. The delay further of the point when the BoC expects the full removal of spare capacity to the middle of 2018 from the end of 2017 is strong justification in itself for action at that meeting.

The Bank of Canada cut its real GDP projections for 2016 and 2017 in part due to disappointing non-energy exports. There remain doubts over the competitiveness of the Canadian economy and this problem is captured by the fact that Canada’s current account deficit remains problematic at 3.4% of GDP.

Further monetary easing may be seen as beneficial in providing another leg lower for CAD. An easing in December a week before a hike from the Fed should be a powerful force for a further lift in USD/CAD, especially given the spot rate is already lagging based on the 2-year US-CA swap spread. Any surprise undershoot in the inflation data today would fuel a bigger CAD downside move given the BoC stance expressed this week.”