BoC Reliant on Weakness in CAD - ING
Viraj Patel, FX Strategist at ING explained, in respect of the Bank of Canada (BoC)
coming up this week, with the policy rate likely to remain on hold,
front-loaded CAD weakness is even more crucial for a central bank deeply
reliant on export-led growth.
Key Quotes:
"With
the policy rate likely to remain on hold, front-loaded CAD weakness is
even more crucial for a central bank deeply reliant on export-led
growth.
The Jan MPR revealed that net exports is expected to
account for a sizable chunk (1.4ppts) of 2016 GDP growth. The 10% rally
in the trade-weighted CAD since the 20 Jan meeting will be a concern for
policymakers, although part of the strength can be justified by a
recovery in oil prices (and risk sentiment). Indeed, our short-term
model indicates that USD/CAD is currently trading close its estimated
fair value (1.3200/50).
The repricing at the short-end of the
CAD curve has also played a role, with the 2Y yield rising by 27bp since
bottoming in mid-Jan. A more cautious BoC, one that follows the Fed in
citing concerns of financial conditions, will see local rates (and the
CAD) nudge lower."
(Market News Provided by FXstreet)
