In view of Richard Franulovich, Head of FX Strategy at Westpac, the BoC delivered a more determined message on the future path for rates this week, jettisoning their pledge to take a “gradual approach” with a more medium term focus that, “the policy interest rate will need to rise to a neutral stance”.
Key Quotes
“The BoC has been notably buoyed by the new trade deal, LNG project approvals and continued solid growth momentum both in the US and Canada.”
“BoC staff estimate neutral in a 2.5%- 3.5% range, the midpoint implying +125bp in BoC hikes. By contrast, markets price in just +75bp through to Dec 2019, leaving some future latent potential upside risk for CAD on the table.”
“We cannot rule out a move as soon as their next meeting too, given the BoC’s urgent tone, yet just +5bp in hike risk is discounted.”
“CAD should trade on the front foot on a broad front; USD/CAD a clear sell at current levels (1.3000) targeting recent lows 1.2770; EUR/CAD notably overvalued relative to interest rate spreads too.”
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