USD/CAD to climb towards 1.28 if BoC reaffirms the output gap will close by late-2022 – Scotiabank

USD/CAD trades past 1.24 ahead of steady-handed Bank of Canada policy announcement. Economists at Scotiabank expect the USD/CAD pair to potentially rise towards 1.26 if the BoC pushes back against market pricing for an earlier start to the rate tightening cycle.

USD/CAD to plunge towards 1.23 on a more hawkish BoC

“We are very dubious on whether the BoC will make any concession to the output gap closing earlier than the middle of next year – which would be shorthand for earlier interest rate hikes. In other words, we expect the statement to push back against market pricing for an earlier (April) start to the rate tightening cycle.”

“The CAD is liable to soften towards 1.25 and might extend towards 1.26 if the BoC sticks with the view that the output gap will not close until later in 2022.”

“In the unlikely event of the bank sounding more hawkish and effectively endorsing current market pricing for rates, the CAD will rally towards the low 1.23s at least.”

See – BoC Preview: Forecasts from seven major banks, asset purchases to be cut