CAD could prove more sensitive to hawkish BoC policy surprise – MUFG

Economists at MUFG Bank weigh up risks for CAD ahead of BoC’s upcoming policy meeting.

CAD stands to benefit initially if the conflict in the Middle East broadens out and Oil rises above $100

The Canadian rate market is currently pricing in only 4 bps of hikes for this week and 7 bps by December, which suggests that the CAD could prove more sensitive to a hawkish BoC policy surprise in the near term. Beyond this year though we believe that the Canadian rate market is currently under-pricing the risk of BoC rate cuts.

The CAD stands to benefit initially if the conflict in the Middle East broadens out and the price of Oil rises above $100/barrel. However, the BoC policy outlook is not as favourable so upside potential should be less than last year. 

See – BoC Preview: Forecasts from nine major banks, keeping rates on hold and prospect of further hikes alive