BoC: a rate hike is priced in? – UOB

FX Strategists at UOB Group assessed the prospects for the upcoming BoC meeting.

Key Quotes

“The Bank of Canada (BoC) meeting carries significant interest. As well as the announcement on interest rates at 10pm SGT, the central bank will release its latest Monetary Policy Report and Governor Stephen Poloz will hold a press conference following the decision”.

“Rate hike odds have surged quickly over the past month with key officials indicating a notably more positive outlook, especially with robust data. Earlier this month, there was less than a 10% chance of a 25bps rate hike at this meeting; but just the start of this week, overnight index swaps are pricing in a 94% chance”.

“During this timeframe, USD/CAD has depreciated by around 5%. Needless to say, it appears that the rate hike itself is priced in. Focus should thus be on the tone in the accompanying policy statement”.

“Choppy inflation readings below the central bank’s medium-term target, the slowest wage growth since 1990, and signs of the housing market bubble popping makes it unlikely that the BoC takes a hawkish tone. Without a hint that a second rate hike could come before the end of 2017, the CAD could reverse some of its losses after the policy decision later today”.