The Canadian dollar recovered after the big blows, thanks to the bounce in oil prices. Will OPEC deliver on May 25th? The loonie also faces the Bank of Canada, which may be more dovish given the recent slide in inflation. What can we expect? Here are four opinions:
Here is their view, courtesy of eFXnews:
CAD 3-5% Overvalued; BoC On Hold With A Neutral Stance; – BofAML
Bank of America Merrill Lynch Research expects the Bank of Canada (BoC) to remain on hold in its 24 May meeting.
“We see the BoC on hold in May with a neutral statement as growth and inflation diverge. We expect BoC to hike in 1Q18,” BofAML adds.
On the CAD front, BofAML argues that the BoC’s likelihood of staying on hold this year should continue to be supportive of BofAML’s overall negative view on CAD, with modest smaller upside for USD-CAD.
“This stance is against recent market moves, where CAD has rallied a bit on the back of oil prices in past days. However, we continue to look for CAD to sell off modestly to 1.39 by the end of the year, primarily because we still look for interest rate differentials to imply a higher USD….
At present, we would see CAD as around 3-5% overvalued combining the information from both rates and commodities markets,” BofAML argues.
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OPEC May Extend Output Cut Deal This Week; BoC On Hold; – Citi
Citi Research expects the Bank of Canada (BoC) to keep the interest rate unchanged at its policy meeting on Wednesday.
“If the BOC says to use other property market measures to solve the housing issue instead of interest rate policy, CAD may be underpinned,” Citi argues.
In addition, Citi also notes that CAD investors will focus on the outcome of the OPEC meeting on Thursday.
“OPEC may extend output cut deal by 9 months this week, which may support oil prices and underpin CAD,” Citi adds.
BoC A Non-Event; Focus On OPEC Meeting On Thursday – Barclays
Barclays Capital Research expects the BoC to leave its overnight rate target unchanged at 0.5% on Wednesday.
“The BoC statement is likely to acknowledge the risks coming from household debt and the housing markets, highlighting the idiosyncratic nature of recent events and a lack, for now, of any systemic downturn, in line with Governor Poloz’s recent speeches….The continued slack in the economy, dismal wage growth and below-target core inflation will be reiterated, and the BoC is likely to keep its neutral-to-dovish tone. With little change in the statement expected and the absence of a press conference, the BoC this week should be a non-event,” Barclays adds.
However, Barclays expects the main driver for CAD, beyond sentiment surrounding the USD and US politics, will be the outcome of the OPEC meeting on May 25.
“Oil prices could be supported by the confirmation of a finalized agreement, but the upside is likely to be limited. A more aggressive production cut in the near term (because of longer duration of cuts or increased compliance) poses downside risks for oil prices in 2018 as non-OPEC supply picks up,” Barclays argues.
CAD: BoC To Stress Canada-US Policy Divergence; Impact On CAD – CIBC
CIBC Research expects the Bank of Canada (BoC) to stay on hold at its policy meeting on Wednesday, and to stress the policy divergence between Canada and the US.
“The BoC already had bullish forecasts for near-term growth, so there’s no need to hint at any changes to those projections in this non-MPR statement. Expect Poloz to continue stressing the differences between Canada and the US as he keeps interest rates on hold,
…In this week’s statement Governor Poloz will likely once again alert investors to differences between the US and Canadian economies, explaining why rates here remain on hold while the US hikes,” CIBC argues.
On CAD front, CIBC expects only a modest CAD appreciation, with USD/CAD reaching 1.34 by year-end but with CAD underperforming other majors.
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