USD/CAD to head lower towards the 1.20-1.23 area as the year progresses – ING

The Bank of Canada (BoC) is set to deliver a 50bp hike later today. Economists at ING expect the USD/CAD to retrace lower towards the 1.20-1.23 area though some spikes to 1.27 are on the cards.

50bp from the Bank of Canada today

“Strong growth, tight labour markets, and above-target inflation should see the BoC hike 50bp y to 1.00%. The focus will also be on what BoC does with its balance sheet, where it could potentially announce some fast quantitative tightening (QT). Given the short duration of its bond portfolio, any end of reinvesting maturing bonds could see the BoC balance sheet shrink quickly over the next couple of years.”

“USD/CAD has already retraced 50% of the March drop to 1.2400, and even if we were to see a temporary spike in USD/CAD to the 1.2700 area, we suspect plenty of CAD buyers would return.” 

“Healthy terms of trade gains on the back of the commodity shock leave the CAD as one of our preferred currencies this year – expecting levels in the 1.20-1.23 area as the year progresses.”

See – BoC Preview: Forecasts from 10 major banks, hard to argue against a 50 bp hike