“Narrowing our focus to the September Bank of Canada meeting (5 Sep), we think there are potential upside risks to the CAD – with markets underestimating the odds of a 25bp rate hike at the meeting,” ING analysts note.
Key quotes
“While only a 27% chance of a hike is priced into the CAD OIS curve, our economists feel that the recent flurry of positive data – namely the July labor market and inflation reports – justifies Governor Poloz delivering a second successive rate hike in 2018 (after having raised interest rates in July). Moreover, NAFTA uncertainties have not necessarily thwarted the economy – while hopes of a deal in the near-term should give the BoC some confidence over tightening.”
“2Q Canadian GDP data in the week ahead (Wed) may effectively seal the deal; our economists are looking for a 3.0% QoQ annualised print – which is a touch stronger than the BoC’s own 2.8% estimate in the July Monetary Policy Report. Governor Poloz may use his speaking opportunity at Jackson Hole to nudge markets towards the possibility of a September hike – although we know that the BoC chief prefers to keep markets guessing over policy decisions and is not afraid to surprise. Look for CAD to retain a bullish tone ahead of the Sep BoC meeting – with risks of a hawkish BoC re-pricing at the front-end of the curve driving CAD sharply higher (USD/CAD to 1.28-1.29). Canadian politics and the run-in to the May 2019 elections is something to watch out for – although this may not be an active risk until later in the year.”
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