BoC: Unchanged stance, data dependent – Nomura

At yesterday’s BoC meeting, interest rates were unchanged and the BoC kept its cautious and pragmatic stance, points out Sam Bonney, Research Analyst at Nomura.

Key Quotes

“The BoC upwardly revised its GDP growth forecasts at yesterday’s meeting. The forecasts for end-2018 and 2019 were raised to 2.1% and 2.0% from 1.8% and 1.7%, respectively. While the Bank noted weaker-than-expected growth in Q1, this was largely driven by temporary factors and the data are expected to rebound in Q2.”

“Outlook for interest rates: Still expecting a slow and hiking cycle

The BoC maintained a cautious and data dependent stance. In the press conference, CAD weakened on comments that interest rates “may need to remain below the neutral range until various forces have dissipated.” The BoC estimates the neutral rate is somewhere between 2.5% and 3.5%.”

“CAD: Being tugged in both directions

• At today’s meeting, the BoC delivered a cautious message in line with our medium-term thinking and should see the USD/CAD rates differential continue to exert a positive force on USD/CAD. All else being equal, this should see a weaker CAD.
• However, another key CAD driver is Canada’s terms of trade – which tend to be an anchor over the medium term. Oil prices are continuing to climb higher, which should limit the extent to which CAD can weaken. We expect oil prices to be a more important driver of CAD in coming weeks, and continue to await better levels to enter CAD short positions.”