CAD: BoC Preview/Made in the US - ING
Viraj Patel, Foreign Exchange Strategist at ING, suggests that the
tighter financial conditions will be a concern for BoC’s governor Poloz.
Key Quotes
“This
week’s meeting (13 Apr) may signal that policy has reached an
inflection point with the turnaround in data to see the BoC endorse a
neutral bias. But we suspect that it won’t take much for the downside
risks to re-emerge. The strong reliance on export-led growth means that a
weak CAD is crucial to the reflationary story. We wouldn’t be surprised
to see the BoC follow the Fed this week and strike concern over the
tightening of domestic financial conditions.
As for USD/CAD, the
near-term risks are still skewed to the upside and we could see a move
back to 1.32 should oil prices drift lower. Yet, we think the pair will
trade within a tight 1.32-1.38 range over a 3-6M horizon – with both the
BoC and Fed arguably content with this stability.
Fiscal thrust
is likely to have a subdued impact on near-term growth, meaning that
(future) monetary policy may be required to pick up the slack. With the
uncertainty of the Trudeau government’s first federal budget now lifted,
there is a growing pressure on the BoC to clarify its policy stance at
this week’s meeting.
We do not rule out the possibility of the
BoC having to deliver a 25bp cut later this year to shore up confidence
and keep local monetary conditions easy. 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.
Even if the
BoC were to remain neutral, we see two reasons for why the near-term
risks to USD/CAD are skewed to the upside: (i) growing doubts over the
durability of the oil price rally and (ii) a correction higher in US
rates (given the excessive sell-off).”
(Market News Provided by FXstreet)
