BoC: Follow up rate hike appears distant - Westpac

The BoC hiked +25bp but a follow up appears distant, the Bank noting accommodative policy is needed due to NAFTA risks, that raising rates too quickly could derail growth and that firming CAPEX and labour participation might create room for more noninflationary growth, according to Richard Franulovich, Research Analyst at Westpac.

Key Quotes

“The BoC’s April 18 meeting, when fresh forecasts are tabled, looks ripe for the next hike, 3mths giving plenty of time to assess NAFTA risks. Growth should at least match expectations in that period too thanks to a firm global story and still accommodative financial conditions.”

“The challenge for CAD is that rates markets already discount another +50bp in hikes to Q4. But, CAD looks insulated with the currency not keeping pace with yield spreads, especially on some crosses such as AUD/CAD. USD/CAD has steadied for now around 1.24-1.26 but the overall picture favours 1.20 before 1.30 on a 3-6mth month horizon.”