Market expectations for this week’s BoC meeting are low - Nomura

Analysts at Nomura explained that strategy implications and medium-term outlook Market expectations for this week’s BoC meeting are low – having declined from around a 33% likelihood of a hike priced after July’s CPI print. 

Key Quotes:

"An October hike is also now almost fully priced, in line with our own expectations."

"CAD reactions around this week’s meeting are likely to be relatively muted in our view, but if anything the BoC is likely to nudge the market towards an October hike. This could cause modest CAD appreciation pressures, but NAFTA negotiations are likely to be a more important driver in coming weeks. We believe a lot of the good news is priced in for now. Over the medium term we maintain our view that the BoC will hike at a slower pace than the Fed. We still see downside risks to the Canadian growth outlook."

"Q2 GDP data showed a further moderation in business investment growth at 0.4% q-o-q, the slowest rate since Q4 2016. Consumption growth remains robust, supported by strong wage growth in Q2. However, wage growth is starting to level off, having peaked in May."

"We expect rising interest rates to provide a drag on consumption growth, seeing growth rates fall below-trend next year. After October’s hike we expect just two more BoC hikes in 2019. We expect these negative themes to exert gradual upward pressure on USD/CAD."

"Over a year since the BoC’s first hike in June 2017, it would be typical for market expectations for further normalisation to subside from current levels."