BoC likely to raise interest rates - BBH

In view of analysts at BBH, the Bank of Canada is not just about talk and altering its forward guidance and will most likely become the second G7 central bank after the Federal Reserve to raise interest rates.  

Key Quotes

“Ever since Senior Deputy Governor Wilkins suggested on June 12 that the central bank is reconsidering the level of monetary accommodation in light of economic performance, there has been a sustained campaign.”

“The result is that a 25 bp rate hike at this week's meeting is practically fully discounted.  Indeed, we suspect that there are better odds than the market is discounting of a follow-up hike in Q4, as the central bank unwinds the two rate cuts delivered in 2015 in response to the oil shock.”

“The economy has averaged 3.5% growth (annualized) over the past three-quarters, and Q2 17 appears to have begun off on solid footing.  Job growth has been impressive.  Canada has grown 29k jobs a month on average over the past 12 months.  Canada is roughly a tenth the size of the US, so it would be as if the US created around 290k jobs a month.  Instead, on average over the past year, the US has created about a third less.  Canada's job growth in Q2 was the most in seven years.  In contrast, the US job growth on a three-month basis fell to a three-year low in May before rebounding in June.”

“The Canadian dollar has been the strongest major currency since the beginning of May, rising 6.25% against the US dollar.  However, it has been a laggard so far this year.  Its year-to-date 4.4% gain, is among the worst performers, being stronger only than the Norwegian krone (~3.3%)and the Japanese yen (~2.7%).  In the futures market, speculators retain a net short Canadian dollar position, while they are net long the other dollar-bloc currencies.  The Canadian dollar has appreciated in seven of the past ten weeks, and this has left it technical stretched.  However, the indicators have not turned.”