BoC Preview: Four scenarios and USD/CAD implications – TDS

The Bank of Canada (BoC) will announce its Interest Rate Decision on Wednesday, 15 April at 14:00 GMT. Economists at TD Securities analyze four scenarios and their implications for the USD/CAD pair.

Key quotes 

“Hawkish (10%): Optimism reigns supreme. Overnight rate and LSAP program unchanged. 2020 GDP contracts <3% before rebound. Poloz cites increased uncertainty (risk of dovish unwind). USD/CAD -0.75%.”

“Neutral (55%): Staying the course. Overnight rate and LSAP program unchanged. 2020 GDP contracts 3-5% before rebound. Notes increased uncertainty, repeats that negative rates ‘are not sensible’. USD/CAD +0.20%.”

“Dovish (25%): Overnight rate unchanged, but some combination of larger purchases of GoCs ($10bn/wk) and CMBs ($1bn/wk). LSAP remains open-ended, but combined with forward guidance. GDP expected to contract by 4-6% in 2020. Bank will continue to look for additional ways to support the market. USD/CAD +0.50%.” 

“Even More Dovish (10%): Whatever it takes. 25 bps is ceiling for CORRA. LSAP increased and expands into CMBs and Provies. 2020 GDP contracts by >5%. LSAP to continue for one year. Bank open to buying credit. USD/CAD +1.00%”