BoC: To stand pat ahead of October hike – Nomura

Analysts at Nomura expect the BoC to be on hold at Wednesday’s meeting and as expectations for a hike at this meeting have declined, thus FX market reactions are likely to be relatively muted.

Key Quotes

“If anything, the BoC may nudge the market towards an October hike, and this could cause modest CAD appreciation pressures. Further out, we retain a negative outlook on Canadian growth and expect the BoC to hike at a slower pace than the Fed.”

“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. 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.

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.”