BoC: Clear intent to carry on with more hikes - Westpac

According to Richard Franulovich, Research Analyst at Westpac, the BoC statement and forecasts show a clear intent to carry on with more hikes – the Bank brought forward the timing of the output gap closing from 2018H1 to end of this year, noted temporary factors are a big reason for low inflation and called the economy “robust”.

Key Quotes

“The BoC’s next meeting is Sep 6 but markets attach a higher probability to a 25 Oct hike (64%), when another MPR is scheduled.”

“A relatively low 32% probability is attached to their Sep 6 meeting, odds that look too low given the BoC’s expectation that the output will be closed by year’s end.”

“USD/CAD should trade to 1.25 within a month and would be surprised to see 1.21 on a 3-6mth horizon (50% retracement of the 0.94-1.47 rally in 2011-2016).”