Ahead of Wednesday’s Bank of Canada (BOC) monetary policy decision, Bank of America (BofA) cites the downside risk for the Canadian dollar. The investment bank’s latest analytics said, “We expect the Bank of Canada (BoC) to present a significantly more constructive outlook for the Canadian economy on 21 April, but without changing its current monetary policy stance: rates at 0.25%, same forward guidance and purchases of at least C$4bn per week.”
The US bank also expects the BOC to “announce a roadmap on adjustments to the pace of government bond purchases, to start tapering as soon as in July once it is clearer that the recovery is well underway.”
Concerning the market reaction, the BofA said, “We believe risks are skewed toward disappointment in the rates and FX market, which is leaning toward taper at this meeting.”
“We continue to expect USDCAD to retrace higher to 1.29 in 2Q, as the result of an additional leg of broad-based USD strength, commodity price consolidation and a modest rebuild in the CAD risk premium reflecting moderation in global risk appetite,” BofA added to the notes.