CAD: BoC Sets For An Obvious Pause With A Slightly Hawkish Tone On Wed – CIBC

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The Bank of Canada is set to leave rates unchanged. But will they hint of fresh rate hikes?

Here is their view, courtesy of eFXdata:

CIBC Research discusses its expectations for tomorrow’s BoC December policy meeting.

That sets up the Bank of Canada for an obvious pause in rates this week, but the more interesting question is how much it will choose to walk back its assuredness that 2.5-3.5% is where we’re headed thereafter. The pattern in non-MPR meetings, excepting those after a big data shocker, would lean towards sticking close to its prior view, and only shading the story slightly,” CIBC projects.

Even if, as we expect, Poloz does walk back a bit of the hawkish talk but falls short of a complete U-turn, there isn’t really room at this point for short rates to rally, or for a dent in the Canadian dollar as a result....

Instead, look for other developments to play a larger role in steering both rates and the FX market. We’ll need to see reasonable hiring, and signs of strength in non-energy export volumes in October, to keep a January rate hike in play. Although we don’t see room for more than two BoC hikes next year, our expectation that OPEC+ production cuts will prompt a further rebound in global crude benchmarks could firm up market expectations for BoC hikes and give a bit more support to the loonie,” CIBC adds.

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