USD/CAD remains near the 1.30 level. Economists at the Bank of America Global Research discuss their expectations for today’s Bank of Canada (BoC) meeting and USD/CAD outlook into year-end. They expect the pair to tumble toward 1.25 by end-2022.
BoC to hike the policy rate by 75 bps to 2.25%
“We expect the BoC to hike the policy rate by 75 bps to 2.25% and to signal that large hikes may continue. Increasing inflation and inflation expectations, a tight job market and Fed hikes continue to push BoC. Risks are for 100 bps.”
“We continue to expect that as risk aversion normalizes, and the positive terms-of-trade shock is ultimately likely to persist, that USD/CAD will decline and recouple back to fundamentals.”
“The BoC's rate hiking pace should help to provide CAD support, especially as the BoC is among the most aggressive central banks in G10 in terms of matching the Fed for rate hikes. Our forecast for USD/CAD for the end of the year is 1.25.”
Also read – BoC Preview: Forecasts from nine major banks, hiking interest rates aggressively