23 Jun 2014
Risk of a less dovish BoC - RBS
FXStreet (Bali) - According to RBS FX Strategists, there is increasing risk of a less dovish BoC, following the upbeat retail sales/CPI numbers out of Canada last Friday.
Key Quotes
"In June, the Bank of Canada noted that softer than expected growth abroad offset the higher domestic inflation readings, which in their view left the downside risks to inflation as still "important"."
"They may keep that language, particularly amid a growth outlook that is still highly dependent on a recovery in export and business investment that is still largely seen as elusive."
"Still, higher current inflation reading opens up a (hawkish) risk that the Bank notes that downside risks to inflation have diminished at its next meeting in July."
"In particular, if US growth is seen as recovering further and China indicators improve, the Bank may be more comfortable reducing its level of concern for downside inflation risks. However, this is unlikely to be enough for the Bank to remove its neutral stance on the benchmark rate."
"At the same time, while the Bank may reduce concerns about downside risks to inflation, we anticipate the Bank of Canada remains likely to look through near-term inflation pressure, citing a still tepid growth outlook."
"There are no notable domestic data releases in Canada next week, making the US PCE deflator likely the key data event for the USD/CAD pair."
"Positioning appears to still be short of CAD, meaning a push toward new 2014 lows in USD/CAD may have further room to run as the market prices in risks of a less dovish BoC next month."
"Still, we remain cautious on chasing CAD gains further from current levels, though we await signs of more neutral positioning before looking for a retracement."
Key Quotes
"In June, the Bank of Canada noted that softer than expected growth abroad offset the higher domestic inflation readings, which in their view left the downside risks to inflation as still "important"."
"They may keep that language, particularly amid a growth outlook that is still highly dependent on a recovery in export and business investment that is still largely seen as elusive."
"Still, higher current inflation reading opens up a (hawkish) risk that the Bank notes that downside risks to inflation have diminished at its next meeting in July."
"In particular, if US growth is seen as recovering further and China indicators improve, the Bank may be more comfortable reducing its level of concern for downside inflation risks. However, this is unlikely to be enough for the Bank to remove its neutral stance on the benchmark rate."
"At the same time, while the Bank may reduce concerns about downside risks to inflation, we anticipate the Bank of Canada remains likely to look through near-term inflation pressure, citing a still tepid growth outlook."
"There are no notable domestic data releases in Canada next week, making the US PCE deflator likely the key data event for the USD/CAD pair."
"Positioning appears to still be short of CAD, meaning a push toward new 2014 lows in USD/CAD may have further room to run as the market prices in risks of a less dovish BoC next month."
"Still, we remain cautious on chasing CAD gains further from current levels, though we await signs of more neutral positioning before looking for a retracement."