CAD: Big two-way risks going into the BoC meeting - ING

According to analysts at ING, after a stunning 2Q GDP print of 4.5% QoQ annualised, market chatter of a second successive Bank of Canada (BoC) rate hike at this week's meeting (Wed) has grown which can add to volatility of CAD.

Key Quotes

“The CAD OIS curve is now pricing in a 55% chance of this happening. We suspect that the BoC may hold back this month and wait till October before hiking; our base case would be fairly CAD negative, with risks of a move back up to 1.2600/50.”

“Were the BoC to move this week - which we wouldn't fully rule out given the central bank's proclivity to surprise - the difficulty may be in reigning in market optimisim future rate hike given that we only have the statement this month. Unless we get an explicit signal that the BoC will pause before hiking again, the risks are that a surprise rate hike fuels an unwarranted tightening of financial conditions (including CAD rally) that could choke any nascent recovery. This scenario could see USD/CAD run down to the 1.2250 area.”