The Bank of Canada (BoC) held the overnight rate at 0.25% in January, in line with consensus. The CAD weakened following the decision. That said, a hawkish hold alongside what economists at TD Securities think will be a bit of a relief risk rally still leaves the loonie better placed for now.
Rate hikes will be coming soon
“The Bank of Canada held the overnight rate at 0.25% in January, in line with consensus, although markets were pricing a much higher probability of liftoff. The Bank also provided strong signal for a March hike by noting that economic slack has been absorbed.”
“We look for the Bank to hike by 25 bps at its next meeting.”
“We think it is difficult to fade the CAD with a central bank set to hike. That said, with how the curve is priced, we are cognisant that any additional gains will eventually be grounds for lightening up on longs.”
“Near-term, we are biased to a relief rally following a terrible start in equities this year. That should benefit the CAD.”