BoC decision in focus: Canadian Dollar gains against US Dollar seen as limited - MUFG

Markets imply an 80% probability of a BoC hike, according to MUFG’s Derek Halpenny. He doubts Governor Macklem will endorse the 100 bps of tightening priced in through next September. Weak Canadian labour figures and persistent US trade risks leave little scope for further gains in front-end yields, in his view. He expects USD/CAD downside to remain limited and favours a recovery if the Fed maintains its hawkish stance.

100 bps of BoC Tightening Priced In: Limits to Loonie Gains

"The pricing for today’s BoC meeting indicates an 80% probability of a rate hike which is not quite in done-deal territory and there is scope for a surprise."

"But there is 100bps of hikes priced into the OIS curve out to September next year and hence the question is – will today’s communications be consistent with that extent of hikes currently priced?"

"The Canadian economy lost 68.3k jobs in September after a loss of 41.7k in August."

"So we don’t see much scope for USD/CAD to move lower on the back of a hike today."

"Assuming Fed Chair Warsh does enough to keep markets positioned for three more hikes, a rebound in USD/CAD looks more likely than an extension further lower."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)