BoC Preview: Focus on projections - Rabobank

Christian Lawrence, Senior Market Strategist at Rabobank, suggests that they are in line with the Bloomberg consensus, fully expect no-change to the 0.50% Canadian policy rate when the latest decision is announced at the Bank of Canada (BoC) meeting on Wednesday 13th July.

Key Quotes

“Of the 27 analysts surveyed by Bloomberg, all 27 expect no-change while the front-end of the curve is pricing in around a 7.5% chance of a 25bp cut.

The Bank of Canada last altered the policy rate back in July of last year with a 25bp cut that followed the 25bp cut seen in January 2015; these two moves partly unwound the 75bp of tightening in 2010 which raised the policy rate off of the 0.25% historical low.

Looking forward, we expect the BoC to leave rates on hold at 0.50% until at least 2017 H2.

The BoC will also release its latest Monetary Policy Report in tandem with the decision that will outline the Bank’s new base-case projections for inflation and growth. We expect growth forecasts to be revised slightly lower.

In terms of the currency, USD/CAD is almost unchanged relative to the May meeting with price action still trapped in the 1.26-1.32 range with a bias to 1.28 to 1.32. Indeed, the average rate since the last meeting is 1.293, only just shy of the current spot of 1.303. The correlation to oil prices did diminish mid-June but as we continue to note, for USD/CAD any breakdown in the relationship with oil prices is likely to prove short-lived and indeed, correlations are now back towards historical highs. We see USD/CAD remaining in the 1.28-1.32 range over the course of the next year.”