BoC rate hike expectations fading as employment data awaited - BBH

Analysts at BBH suggest that the expectations for the Bank of Canada have gone in the opposite direction as that of Fed.  

Key Quotes

“At the start of February, the OIS implied a little more than a 60% chance of a rate hike in April and a 76% chance of a move in May.  Now the odds are almost 39% and 54% respectively.”

“The central bank thinks that the removal of additional liquidity (rate hikes) will be needed, as the economic slack has been largely absorbed.  It recognizes the significance of the uncertainty arising from trade issues.  While Deputy Governor Lane suggested that the quality of the growth in Q4 was better than the optics suggested, he maintained the cautious tone of Governor Poloz, which encourages us to favor a May move over April.”

“Canada averaged 57.9k new jobs a month in Q4 17.  This is the rough equivalent of the US creating 600k jobs a month.  The job creation hit a wall in January when Canada reported a loss of 88k jobs.  The fact that part-time jobs bled 137k jobs, while full-time gained a still-robust 49k jobs, sparked various explanations, including an increase of minimum wage in some provinces.”

“The median expectation in the Bloomberg survey is for Canada to have created 21k new jobs.  It averaged 35.6k in 2017 and 18.5k in 2016.  Barring a significant surprise, the employment data is unlikely to sway investors about the timing of the next hike.”

“The US dollar has tried pushing through the CAD1.30 level several times.  If it does not happen soon, we suspect momentum traders will look to deploy their capital elsewhere.  The MACD and Slow Stochastics are rolling over.  Two large options expire today against the Canadian dollar.  The first is a $520 mln option at CAD1.2860 and the other $1.9 bln struck at CAD1.30.”