Economists at TD Securities look for the Bank of Canada (BoC) to hike rates by 25bps in March. With the Fed and BoC set to hike, they do not see a huge swing factor for USD/CAD. Here are four possible scenarios regarding the upcoming monetary policy announcement.
“50bp hike + Roll-Off. BoC moves off the ELB with a 50bp hike. Inflation tracking above MPR projections, and Russia/Ukraine conflict introduces new risk to energy and supply chains. Must ensure this does not become embedded in expectations. Reinvestment of balance sheet to cease after March 11th. USD/CAD -1%.”
“25bp Hike + Roll-Off. BoC follows through on 25bp rate hike. Statement flags strength of inflation and modest impact from Omicron, but monitoring Russia/Ukraine conflict (and risks to inflation/activity) closely. Reinvestment of balance sheet to cease after March 11th. USD/CAD -0.50%.”
“25bp Hike + Reinvestment. BoC follows through on 25bp rate hike. Statement flags strength of inflation and modest impact from Omicron, but monitoring Russia/Ukraine conflict (and risks to inflation/activity) closely. Continuing reinvestment phase could say more in Thursday's Progress Report. USD/CAD -0.20%.”
“Deja Vu All Over Again (No Change). Russia/Ukraine conflict to weigh on financial conditions and growth. Appropriate to delay start of tightening given highly uncertain geopolitical backdrop and potential for escalation. USD/CAD +1.50%.”
See – BoC Preview: Forecasts from seven major banks, a 25bps hike with several more to come
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