BoC Interest Rate Expectations
Markets continue to price in aggressive tightening from the Bank of Canada over the next year with overnight index swaps predicting 170 bps in hikes. The central bank hinted at a change in monetary policy at next month’s policy meeting following their last hold. GDP and inflation have accelerated faster than forecasted which has put policy makers on alert. A disappointing international merchandise trade balance for March could raise concerns that demand from abroad (the main driver of the current recovery) has started to wane. However, with energy costs the main culprit, the decline may be overlooked putting focus on next week’s consumer price data. If we see headline or core inflation threaten the central bank’s 2.0% target, then rising interest rate expectations could become a driver of price action leading the Canadian dollar
higher. Discuss this and trading ideas join the USD/CAD forum
FOMC Interest Rate Expectations
The prospect for a rate hike in August has slipped back to 9.4% as the debt issues in Europe have raised concerns over the United States bulging short fall. The Fed continues to predict that they will keep rates low for an extended period and the recent issues in Greece should only reinforce their conviction. At the end of last year it appeared to be a certainty that a rate hike would come in 2010, but markets are only giving a 41.4% chance of an increase in November which may make 2011 the safer bet. A strong U.S. retail sales report on Friday could increase the odds in the favor of tightening, as a rise in consumption could put upward pressure on prices and inspire future hiring.
Rising oil supplies and the prospect of slower growth as governments reign in spending has sent crude below $75 per barrel. A strong U.S. consumption report could ease concerns that supply is out running demand and stabilize oil prices. If this is the case then we could see Canadian dollar gains continue However, more signs that consumers aren’t able to take the torch of spending from the government could drag prices lower taking the “loonie
” in tow. Discuss this and other fundamental data in the Economics Forum
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