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BoC Preview: A turning point? - ING

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Apr 11, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    According to Viraj Patel, Foreign Exchange Strategist at ING, at the next meeting on Wednesday 13, the Bank of Canada, tighter financial conditions will be a concern for Poloz while regarding USD/CAD risk are still skewed to the upside.

    Key Quotes:

    “This week’s meeting (13 Apr) may signal that policy has reached an inflection point with the turnaround in data to see the BoC endorse a neutral bias. But we suspect that it won’t take much for the downside risks to re-emerge. The strong reliance on export-led growth means that a weak CAD is crucial to the reflationary story. We wouldn’t be surprised to see the BoC follow the Fed this week and strike concern over the tightening of domestic financial conditions.”

    “As for USD/CAD, the near-term risks are still skewed to the upside and we could see a move back to 1.32 should oil prices drift lower. Yet, we think the pair will trade within a tight 1.32-1.38 range over a 3-6M horizon – with both the BoC and Fed arguably content with this stability.”

    “Even if the BoC were to remain neutral, we see two reasons for why the near-term risks to USD/CAD are skewed to the upside: (i) growing doubts over the durability of the oil price rally and (ii) a correction higher in US rates (given the excessive sell-off).”

    “The Fed’s renewed focus on US financial conditions has profound implications for our USD/CAD outlook. An important factor behind the tightening of US financial conditions in 2H15 was USD strength against the currencies of major trading partners . Given what we now know about the Fed’s reaction function, a sharp move higher in USD/CAD is likely to be inconsistent with a hawkish Fed. We think the USD side (via higher US rates), may only give rise to modest USD/CAD upside at best.”
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