BoC could reinforce CAD weakness – MUFG

Economists at MUFG Bank see Bank of Canada caution at its meeting this Wednesday. Thus, the Loonie could come under pressure.

BoC should revert to a 25 bps rate increase

“We expect to see a degree of caution from the BoC given the flow of economic data clearly points to downside risks. We see the terminal rate pricing (4.25%) as reasonable although we believe there is a bigger risk of the markets moving to price an end after Wednesday’s hike, although it is unlikely the BoC will indicate that at this juncture but if the data on inflation improved and economic data worsened, the BoC could pause in January.”

“Weaker economic data in Canada, optimism globally over peak inflation, and slower growth emerging more clearly in the US all suggest the BoC is close to ending its tightening cycle. Any sense of that this week would reinforce our view of CAD underperformance versus G10 becoming the norm going forward.”