Previews of the bank of Canada monetary policy meeting on Wednesday 09 September 2015
BOA/ML are expecting the bank to remain on hold, while BNP are looking for a cut
BofA Merrill:
"Even with underlying economic weakness likely on the horizon, there is little reason for the BoC to jump the gun and ease the overnight rate at its September meeting on Wednesday. In our view, the BoC will likely nudge the overnight rate down in October if oil prices remain subdued and growth remains tepid, as further stimulus would be needed eliminate economic slack," BofA projects.
"A relatively neutral statement tone as a result of these developments would likely elicit knee-jerk C$ strength with USD/CAD still trading close to its recent highs despite the rebound in oil prices. Bottom line, whether the Fed hikes in September (still our base case) or later, policy divergence still moves strongly in the dollar's favor as the BoC hikes again, supporting our higher USD/CAD conviction. We would fade any C$ strength on the back of a more neutral statement and no cut," BofA projects.
BNPP:
"Regardless of how the risk environment and commodity prices evolve this week commodity bloc currencies remain vulnerable to the damage already done to their domestic economy by the Q3 slump in commodity prices. We expects the BoC to cut rates by 25bp on Wednesday. Slightly firmer GDP and employment data has left the market reluctant to price in immediate BoC easing but our economists are sticking with their non-consensus view amid a recessionary economy and continued weakness in oil prices," BNPP projects.
"Easing as early as this week would generate renewed USDCAD upside momentum towards the 1.35 target on our long USDCAD trade. BNPP maintains a long USD/CAD trade in its portfolio in spot from 1.3140, with a stop at 1.2940, and a target at 1.35," BNPP advsies.
