We are pleased to bring you the latest edition of the series produced by our colleagues in RBC Capital Markets, hosted by George Davis, CMT, the award winning Chief Technical Analyst for Fixed Income and Currency Strategy.
In this installment George discusses how the somewhat surprising 25 bps June rate hike by the Bank of Canada resulted in changes to CM’s interest rate and FX forecast. Persistent excess demand, higher than expected Q1 GDP, April inflation, firm jobs data and a rebound in the housing market led to the hike. This came after a pause at the previous two meetings and pushed interest rates to a 22-year high. Further, the BoC statement suggests that more than a one-off rate hike may be needed to meet their 2% inflation target. RBC Economics now expects one more 25 bps rate hike to 5% in July while pushing out expectations for a mild recession to Q3/Q4 as the lagging impacts of interest rate hikes take effect. Going forward the BoC is likely to remain data dependent focusing on excess demand, inflation expectations, wage growth and corporate pricing behavior.
In response to a repricing of BoC expectations and recent CAD strength George has lowered his expected trading range for USDCAD to 1.3000-1.3100 on the downside and 1.3400-1.3500 on the topside for USD sellers.