CAD: Guided by the BoC – Westpac

According to Richard Franulovich, head of FX strategy at Westpac, last week BoC upended CAD by jettisoning their forward guidance to return the policy rate back toward neutral and flagging notable downward revisions to global and domestic growth forecasts.

Key Quotes

“From here the BoC will take its time to assess the depth and severity of the recent soft patch. The best case scenario is for both Canadian and global growth momentum to stabilise mid-year and accelerate into year’s end, putting a hike on the table before the year is out. Markets assume otherwise, with 7bp of a rate cut priced in before year’s end (about a 28% probability).”

“That easing risk will likely be eliminated at some point; short of a global slump and a further sudden steep slowing in local growth momentum there’s next to no chance of a BoC cut.”

“Energy prices are firming too. That would all argue for some very short term CAD upside but absent a genuine possibility of any BoC hike, upswings will likely prove shortlived, leaving CAD a 1.30-1.34 range trade for now.”