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The BoC is one of the few central banks committed to policy tightening as officials are preparing markets for a hike as soon as their next MPR meeting July 11, notes Richard Franulovich, Research Analyst at Westpac.

Key Quotes

“Markets continue to price in a solid 68% probability for a hike at that meeting.”

“Yet the backdrop for CAD is increasingly challenged as trade uncertainty grows on multiple fronts: dramatic escalations of US/China trade tensions; US Commerce Dept investigation into possible tariffs on auto imports (on national security grounds) and a non-negligible risk of the Trump administration walking away from NAFTA.”

“CAD’s sharp depreciation (even more than EUR over past week) spotlights dramatic shifts in the macro backdrop. If trade tensions continue to intensify and the BoC passes at their next meeting (growing risk) USD/CAD will continue to push higher.”