BOC PREVIEW: THREE SCENARIOS AND THEIR IMPLICATIONS FOR USD/CAD – TDS

Economists at TD Securities discuss the Bank of Canada (BoC) interest rate decision and their implications for the USD/CAD pair.

Hawkish (10%)

“Bank lifts overnight rate to 4.75%, abandoning its conditional pause. Statement notes that overheated labour market has introduced upside risks to its outlook, and that pace of job growth has cleared the high bar for additional tightening. New guidance does not rule out further hikes. USD/CAD -0.80%”

Less Hawkish (10%)

“Bank leaves overnight rate unchanged at 4.50%, with outlook evolving in line with January MPR. Statement notes flat print on Q4 GDP, but economy remains in excess demand. Bank also notes that surging labour market has lowered bar to resume tightening, and shifts its guidance from a conditional pause to a more balanced data-dependent stance. USD/CAD -0.20%”

Base-Case (80%)

“Bank leaves the overnight rate unchanged at 4.50%, with a short policy statement that echos its message from January. Bank cites flat print on Q4 GDP as evidence that higher rates are working to slow demand. Bank also notes that inflation outlook has evolved in line with MPR, with only a cursory mention of labour market strength. Minor tweaks to forward guidance to amplify conditional nature of pause. USD/CAD 0.10%”