USD/CAD has more room to the downside – 2 opinions

The BOC raised rates again and sent the Canadian dollar shooting higher. And it may not be over just yet. Here are two views, both explaining why there is more room to the downside.

Here is their view, courtesy of eFXnews:

CAD: More Strength On The Cards As Market Will Start To Price-In Further BoC Hikes – CIBC

CIBC Research comments on today’s BoC policy decision in which central bank raised rates by 25bp to 1.0%.

“The Bank of Canada took the fast lane in returning rates to 1.0%, hiking 25bp when most were expecting a hold until October. And there were maybe fewer hints of a prolonged pause in hikes from here than we would have expected, now that rates are back to where they stood before the oil shock.

The statement said that removal of “some” of the “considerable” stimulus was warranted, which suggests that at these levels the Bank still views policy as very stimulative. It did say that future hikes will not be “predetermined”, which is maybe an attempt to tell markets that they won’t be hiking a quarter point at every meeting.

However, the statement didn’t go so far as to say the current level of stimulus is now appropriate, which has been a phrase used in the past.

As such markets may now start pricing in further moves, meaning today’s decision will be positive for the CAD and negative for fixed income,” CIBC argues.

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CAD: Lower USD/CAD Levels Ahead; BoC To Continue Hiking With 4 Hikes Into End-’18 – SEB

SEB Research comments on today’s BoC policy decision in which central bank raised rates by 25bp to 1.0%.

“Bank of Canada (BoC) surprised economists and hiked the policy rate by 25bps to 1.0%. This was the second hike in as many meetings…We expected a hike at the next meeting when BoC also would present new macroeconomic forecasts in their Monetary Policy Report. However, the market implied probability of a hike today had risen sharply the past days indicating that the market was more prepared for a hike than economists.

We forecast even lower levels in USD/CAD as we expect BoC to continue hiking rates with at least four more hikes between now and end-2018,” SEB argues.

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