The following are brief expectations for today’s BoC October policy statement as compiled from the related research reports of 8 major banks.
Overall, the consensus expects the BoC to maintain its policy unchanged.
Credit Agricole Research: We expect the BoC to remain on hold in line with market consensus. The meeting and the Monetary Policy Report should offer important information on how the BoC plans to proceed after removing the emergency accommodation this summer. As our economists highlight the pullback in most activity indicators in the latest Business Outlook Survey, along with a lack of significant capacity pressures, gives the BoC cover to stay on hold at this meeting. At the same time the MPR is likely to show that the economy has returned to full capacity, implying that next hike cannot be delayed indefinitely. Our base case remains for a hike in December with the risk that this is pushed out to early 2018 if the BoC decides to wait longer to gauge the reaction of the economy to the two hikes delivered this year as well as get more clarity on the state of NAFTA negotiations that have been deteriorating recently.
Morgan Stanley Research: We don’t expect the BoC to change interest rates today. CAD positioning has turned increasingly long, which limits the upside for the currency. Expectations for Poloz hawkishness have been scaled back with Canadian data surprising to the downside and US yields moving higher. The market is prices for rate hikes in December and April and our position indicator shows CAD longs suggesting that the risk for the CAD is to the downside.
BTMU Research: There is a pretty strong market consensus, which we agree with, that the Bank of Canada will hold off on raising rates for the third time when it meets today and presents its quarterly Monetary Policy Report. Any sense that the BoC may feel it has more time to play with due to increased spare capacity would certainly undermine the Canadian dollar over the short-term. This dynamic has already helped prompt some correction higher in USD/CAD with the 2year swap spread have moved about 40bps in favour of the US dollar as market participants position for a December rate hike.
However, any further CAD weakness is unlikely to prove sustainable.
Barclays Research: We expect the BoC to stay on hold and keep the target for the overnight rate unchanged at 1% at its meeting on Wednesday, in line with the consensus. The statement is likely to indicate that economic activity is moderating as the BoC was expecting and core inflation is slowly moving towards target, as expected, although inflationary pressures remain subdued.
BNP Paribas Research: Wednesday sees the first of four G10 central bank meetings this week: the Bank of Canada policy meeting. Pricing for a 25bp hike has fallen to just a 15% implied market probability. BNP Paribas Positioning Analysis shows the market continues to hold CAD longs ahead of the event, but the exposure has moderated in recent weeks. We are turning more neutral on USDCAD as the pair approaches target.
Nordea Research: Bank of Canada has got the chance to make it three hikes in a row this week. And while the labour market provides BoC a continued scope for policy tightening (Poloz said inflation models are not broken), it will still be a major surprise to see a third consecutive hike. WIRP gives roughly 20% implied probability of a hike. And as the house price momentum is starting to cool, BoC will likely adopt a wait-and-see stance this week. We are still watching out for the unneglectable risk that Bank of Canada has made a grave policy mistake in firming the policy stance too early. Bias for higher USD/CAD is intact ahead of New Year.
BofAML Research: We expect the BoC to remain on hold on 25 October as it waits for the impact of its recent hikes on the economy. We expect a dovish statement following recent economic deceleration. We expect BoC to upgrade its potential growth estimate. We expect the BoC to resume its hiking cycle on 2018, with three hikes to put the overnight rate at 1.75% by end-2018.
CIBC Research: While nobody is pricing in much chance of an October rate hike, the market could further take down odds for a December move if, as we expect, the Bank highlights uncertainties in the outlook that it needs to resolve before moving again. We’re also looking for a weak print on wholesale trade, albeit after a strong July gain.
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