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After two hawkish hikes, the BOC decided to halt rate hikes, sending the loonie lower. What’s next? Here is the view from Credit Agrciole:

Credit Agricole CIB FX Strategy Research discusses it outlook for CAD in light of yesterday’s BoC October policy decision.

A hike in December now looks highly unlikely and our economists have moved their expectations for the next change in the policy rate to January  which is about 63% priced in.

Overall, the market is pricing in a total of two BoC rate hikes   by the end of 2018, while  our economists have kept their call for three hikes but with downside risks.

Ultimately we do not expect NAFTA talks and the state of the housing markets to significantly derail the BoC from normalizing policy. Two hikes looks next year looks like the lower bound given the state of the Canadian economy.

For this reason  we expect further idiosyncratic weakness in the CAD to be limited although we do acknowledge that USD/CAD is likely to finish the year well above its September lows,” CACIB argues.

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