CAD Unfazed post-BoC Meeting
The Bank of Canada hiked by 75 bps to 3.25% as expected on Wednesday this week and is still assessing how much further rates will need to go in order to return inflation to target.
The BoC on inflation
The Bank of Canada recognises that policy rates will still need to rise further. The Governing Council remains resolute in trying to achieve the 2% inflation target. The current level of inflation in Canada is 7.6% and that is down from 8.1% due to a fall in oil prices. However, core inflation remains high in the 5-5.5% band.
The BoC noted that GDP grew by 3.3% in Q2 which was weaker than projected. However, domestic demand was very strong. Consumption grew by 9.15% and business investment was up near to 12% The housing market is cooling, as anticipated with higher mortgage rates, and down from the ‘unsustainable levels’ during the pandemic. The domestic labour market is tight, but the BoC does expect the economy to moderate in the second half of the year.
One step at a time
In a similar vein to the Fed and the RBA, the BoC will assess how much higher rates will need to go as the impact of tighter monetary policy works its way through the economy. Next meeting is on October 26, 2022. You can read the full BoC statement here.
There was no surprise here and nothing to obviously trade. One thing to note is that the BoC was less concerned about both domestic and international inflation. You can read that when you compare the statement here with the prior statement.
The thing to look out for is if the BoC reduces the neutral rate. This could see some of the recent CAD strength unwind. You can see the continued march of CAD strength and there was nothing in the latest BoC statement that was a massive surprise. As a result, there is no obvious trade outlook here aside from looking at short-term CAD catalysts. If anything, less concern over inflation could result in some CAD pullbacks, but it is a low conviction perspective.
HYCM clients can access the Seasonax product in order to analyse over 25,000 currency pairs, indices, commodities, as well as individual stocks. Please contact your account manager for a free trial. Certain products & services mentioned herein may or may not be available to all clients depending on which HYCM Capital Markets Group entity their trading account(s) adheres to.
About: HYCM is the global brand name of HYCM Capital Markets (UK) Limited, HYCM (Europe) Ltd, HYCM Capital Markets (DIFC) Ltd and HYCM Limited, all individual entities under HYCM Capital Markets Group, a global corporation operating in Asia, Europe, and the Middle East.
High-Risk Investment Warning: Contracts for Difference (‘CFDs’) are complex financial products that are traded on margin. Trading CFDs carries a high degree of risk. It is possible to lose all your capital. These products may not be suitable for everyone and you should ensure that you understand the risks involved. Seek independent expert advice if necessary and speculate only with funds that you can afford to lose. Please think carefully whether such trading suits you, taking into consideration all the relevant circumstances as well as your personal resources. We do not recommend clients posting their entire account balance to meet margin requirements. Clients can minimise their level of exposure by requesting a change in leverage limit. For more information please refer to HYCM’s Risk Disclosure.
*Any opinions made in this material are personal to the author and do not reflect the opinions of HYCM. This material is considered a marketing communication and should not be construed as containing investment advice or an investment recommendation, or an offer of or solicitation for any transactions in financial instruments. Past performance is not a guarantee of or prediction of future performance. HYCM does not take into account your personal investment objectives or financial situation. HYCM makes no representation and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast, or other information supplied by an employee of HYCM, a third party, or otherwise. Without the approval of HYCM, reproduction or redistribution of this information isn’t permitted.