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Loonie primed for a rate hike

Posted on: July 12, 2017

The Bank of Canada decision is finally here (8:00am MST) and a 25 bps hike is 89% priced in. If the Bank of Canada does raise rates like expected, the key will be the language of the statement, especially with regards to inflation and the output gap. A hike with some hawkish commentary and the first target on the downside is 1.2850 with the barriers around 1.2800 closely behind. If they leave rates unchanged, we could see a significant bounce in USDCAD as participants unwind their CAD longs. Look for a swift return to a 1.30 handle with 1.31 and 1.32 as distinct possibilities before the end of the session. With Yellen’s testimony coming at the same time as the BoC’s rate decision, USDCAD is expected to be extremely liquid today.

With the sudden desire for BoC to raise rates, counterparts at the BoE have also adopted a more hawkish tone. Despite the uncertainty around Brexit and the political vote, there seems to be a growing interest to raise the key rate to hedge inflationary pressures caused by the depreciation of sterling. Recent data from the UK showed that 3-month wage growth came in better than expected, and higher than the previous quarter.

In addition to the Bank of Canada and crude numbers, we also have testimony from Janet Yellen after her prepared remarks were released earlier this morning. The statement emphasized a need for gradual hikes over the next few years as opposed to a rules based approach to hiking. Nothing new around balance sheet normalization, we will see if they dig deeper into that in the testimony.

  • Yesterday NA 1.2904 - 1.2944
  • Asia 1.2894 - 1.2923
  • London 1.2905 - 1.2939


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