(12 JULY 2017)DAILY MARKET BRIEF 2:Will Canada raise interest rates tomorrow?

On Thursday, the Bank of Canada will decide whether to raise rates. Will interest go up again, as it has over the past month?

On the one hand, the BoC has a decidedly hawkish view. Currency traders have been convinced enough to price in 67 basis points worth of rate hikes for the coming 12 months. On the other hand, the Canadian economy suffers from weak inflation (led by soft wage growth) and significant exposure to external risk – think oil, gas and mineral prices.

In our view, the BoC’s Thursday choice will depend on its reading of the deep data. If they can, they will tighten money, but not automatically. We suspect the markets have overanticipated rate hikes, and that weak oil prices and current account deficit will take 25bp off of the table. In a nutshell: stay long USD/CAD.