BoC: Three scenarios and their implications for USD/CAD – TDS

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The economists at TD Securities discuss Bank of Canada interest rate decision and its implications for USD/CAD.

Hardline (10%)

“Interest rate hike of 50 basis points. The BoC raises the overnight interest rate to 4.75% and maintains the future orientation. The statement adopts a hard-line tone, highlighting the resistance of growth, the rigidity of the markets labor and persistent core inflation pressures 2023 GDP revised up in January Monetary Policy Report as lower energy prices lower CPI forecasts USD/CAD to 1.32 “.

Base case (55%)

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“Interest rate hike of 25 basis points. The BoC raises the overnight interest rate to 4.50% and maintains forward guidance. The statement strikes a balanced tone, highlighting the resilience of growth in the fourth quarter and the strength of the labor market coupled with significant consumer headwinds 2023 GDP unchanged on downwardly revised CPI USD/CAD at 1.34”.

Moderate (35%)

“Rate unchanged at 4.25%. The central bank overlooks a January hike, citing rising inflation, slowing growth and already tightening policy. The dovish Bank statement emphasizes headwinds in against growth in 2023 and revises GDP and CPI forecasts down. Statement maintains December guidance, leaving door open for further gains. USD/CAD to 1.35”.

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Source: Fx Street

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