Risk-reward suggests going long USD/CAD into a big BoC meeting - ING

Viraj Patel, Research Analyst at ING, explains that markets now see a 25bp BoC rate hike (Wed) as a formality after the latest jobs data, which may support the central bank’s more constructive (forward-looking) view on the output gap.

Key Quotes

“Still, the CAD OIS curve pricing in close to ~100bp worth of tightening over a 2Y horizon looks a bit extreme at this stage; we see the most probabilistic outcome being a dovish hike – with any forward guidance signalling a very shallow hiking cycle. However, given that this CAD rally has been too fast, too furious for the economy's liking, we wouldn’t rule out a surprise hold. Either way, a buy the rumour, sell the fact reaction – should push $/CAD back to 1.30.”