BoC: Four scenarios, USD/CAD to tick down -0.20% with expected 25bp rate hike – TDS

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.

Hawkish (5%)

“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%.”

Mildly Hawkish (10%)

“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%.”

Base Case (75%)

“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%.”

Dovish (10%)

“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