Analysts at CIBC, point out that investors are starting to bet that the Bank of Canada will cut interest rates, if not next week, then in October. They see they could be rewarded with an appreciation of the Loonie if current risks do not warrant near-term easing.
Key Quotes:
“Then there’s the Bank of Canada. Much like the Fed, the Bank has placed a lot of weight on trade tensions and the potential negative impact on growth. Poloz opened the door to a rate move in July’s press conference by stating that until “those headwinds worsen or dissipate, then we are content with today’s setting of interest rates”. As those uncertainties have indeed worsened in recent weeks, investors are starting to bet that the Bank will walk through the rate cut door, if not next week, then in October.”
“We’ve maintained our view that the BoC will want to wait for signs of a re-slowing in the Canadian economy before cutting interest rates in January, but admit that an earlier move is a close call. Since July’s MPR, the near-term Canadian growth outlook has improved, with Q2 GDP besting the Bank’s forecast. Meanwhile global growth, while sluggish, appears no worse than the BoC’s downgraded forecast this year.”
“Risks have certainly risen surrounding what comes next in 2020. However, if those risks aren’t large enough yet to warrant a near-term ease, investors could be rewarded with a short-term appreciation of the C$.”
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