Don’t miss this month’s edition of the George Davis Report, where George discusses inflation, Bank of Canada policy expectations and the impact on the Canadian dollar.
What you need to know
1
Sustained above-target inflation has prompted a more aggressive policy response from the Bank of Canada.
2
Additional hawkish rhetoric from the BoC has increased the probability of a 75bp rate hike at the July meeting.
3
Moreover, market pricing has pushed terminal rate expectations 75-85bps above the BoC’s 2-3% estimate for the neutral rate.
4
Our forecasts imply that market pricing is too aggressive and risks being walked back should inflation peak in Q2 as we expect.
5
Such a scenario would likely lead to some degree of CAD weakness.
For the trading range:
USD/CAD
Buyers
1.2700/1.2800
Sellers
1.3100/1.3200