CAD Analysis and Talking Points
- BoC to Keep Rates at 1.75%
- Focus on accompanying statement
The Bank of Canada will publish its latest interest rate decision at 1500GMT where the central bank is expected to maintain its policy rate at 1.75%, according to OIS (Overnight Index Swaps) markets which attach a 94% likelihood that the central bank will stand pat on interest rates. As such, focus will be on the accompanying monetary policy statement.
Source: Refinitiv (BoC Interest Rate Expectations)
Data continues to warrant further rate hikes
Since the October 24th meeting, the majority of key Canadian data has surprised to the upside, which in turn suggests that further rate hikes are warranted and will likely be reiterated by the Bank of Canada are looking to raise interest rates to neutral as soon as possible. However, one cause of concern has been the unprecedented decline in oil prices, which has increased the downside risks to CAD and the BoC’s economic forecasts.
As a reminder, the Bank of Canada’s MPR forecasts had been based on these oil assumptions.
- Brent crude close to $80 ($61.60)
- WTI close to $70 ($53.40)
- WCS close to $35 ($28.25)
| Canadian Economic Data | Date | Latest | Expected | Verdict |
|---|---|---|---|---|
| Employment Change (Jul) | Nov 2nd | 11.2k | 10k | Bullish |
| Unemployment Rate (Jul) | Nov 2nd | 5.8% | 5.9% | Bullish |
| Ivey PMI (Oct) | Nov 7th | 64.6 | 56.5 (Prev.) | Bullish |
| Ivey PMI SA (Oct) | Nov 7th | 61.8 | 50.4 (Prev.) | Bullish |
| CPI (Oct) | Nov 23rd | 2.4% | 2.2% | Bullish |
| CPI (BoC Measure) | Nov 23rd | 2.0% | 2.0% | Neutral |
| Retail Sales (Sep) | Nov 23rd | 0.2% | 0.1% | Bullish |
| Core Retail Sales (Sep) | Nov 23rd | 0.1% | 0.3% | Bearish |
| GDP M/M (Sep) | Nov 30th | -0.1% | 0.1% | Bearish |
| Markit Manufacturing PMI | Dec 3rd | 54.9 | 53.9 (Prev.) | Bullish |
Source: DailyFX (Canadian Data Since BoC’s October Meeting)
Trading the BoC
Given that market pricing is largely for an unchanged rate decision, the focus will be on the accompanying statement from the BoC. Market pricing for January remains elevated at 62.5%. However, pricing has moderated slightly given the sell-off in oil markets, alongside rising concerns of deteriorating global growth. As such, a cautious statement from the BoC highlighting global growth concerns could see rate hike bet recede for January, which in turn could take USDCAD back above 1.33. However, if the BoC remain upbeat given the relatively robust economic data, this could see USDCAD revisit 1.32.
Option Pricing suggests that we could see some volatility over the event with vols indicating a break-even of 84pips.
USDCAD Price Chart: Daily Time-Frame (Dec 2017-Dec-2018)
--- Written by Justin McQueen, Market Analyst
To contact Justin, email him at Justin.mcqueen@ig.com
Follow Justin on Twitter @JMcQueenFX
