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Richard Franulovich, Research Analyst at Westpac, points out that the BoC Governor Poloz was cagey last week but on balance leant in favour of a July 11 hike, noting that the “big picture” favoured hikes and “we’ve said clearly that, given where the economy is, we’re in a situation where the economy will warrant higher interest rates”.

Key Quotes

“The initial read by markets was inconclusive but this has since swung in favour of a hike. The probability of a hike lifted to 80% from 50% in the ensuing days.”

“USD/CAD will be whippy around the July 11 BoC MPR, though fresh fuel for a sustained up-leg is unlikely. The BoC will probably stress a gradual path, given trade uncertainties and high household leverage. A follow up hike of 25bps is largely priced into markets by year-end.”

“Given that the BoC is unlikely to fuel expectations for faster hikes, trade tensions are building and Chinese growth is slowing, USD/CAD is likely to have a tough time breaking sustainably below 1.3000 in the near term.”