Analysts at TD Securities expect the Bank of Canada to lift the overnight rate by 25 bps next week, which is in line with consensus and already priced into rates markets.
Key Quotes
“Recent economic activity has surprised to the upside relative to the BoC’s last forecast in July and downside risks related to US trade action have diminished with the USMCA deal, so the communique should sound reasonably upbeat. Crucially though, forward looking language should be similar to July, emphasizing a gradual and data dependent tightening path.”
“We expect the Bank to revise their forecast for 2018 growth higher by 0.2 p.p., but we do not expect material changes to forecasts for 2019 and 2020 as tighter financial conditions should roughly offset the boost from greater certainty on trade with the US. Still, with the economy tilting a bit further into excess demand, we now look for three BoC hikes in 2019.”
“We prefer selling volatility in USDCAD, as we expect it to hold the 1.28-1.32 range over the coming months. This backdrop lends itself to cross trades where we are long AUDCAD and long EURCAD in riskies.”
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