USD/CAD: Loonie unlikely to benefit from BoC tightening – ING

The Bank of Canada (BoC) is set to taper QE purchases further to C$1bn per week with the programme likely concluded in December as the market increasingly prices in 2022 rate hike, explained analysts at ING. They expect a neutral impact on the loonie (CAD) which seems to have most of the positives in the price and may experience corrections in the near term. 

Key Quotes: 

“USD/CAD is finding some consolidation in the 1.23/1.24 area after a marked correction from the 1.27 level where it used to trade at the end of September. The move has been in line with the rally in other commodity currencies, which was exacerbated by the sharp rise in energy prices.”

“Domestic factors have also contributed, as the data flow has proven particularly supportive for the loonie, as a tighter jobs market and rising inflation kept strengthening the case for more Bank of Canada tapering.”

“We expect the BoC to taper asset purchases again next week and in December, formally ending QE by the end of 2021. We think this is very much in the price, and we doubt CAD can receive any significant lift from the tapering announcement next week.”

“Any material FX impact from the BoC announcement will likely rely on the degree by which the BoC will address the current market expectations that see a first 25bp rate hike almost fully priced in for the April 2024 meeting.”