The discounting of Canadian rate cuts following surprisingly strong US payrolls data was not fundamentally justified. Canadian expectations have been revised sharply and the market is now pricing in even more Canadian rate cuts than before the US payrolls data. This despite contrasting developments in interest rate expectations in the Eurozone, US and UK, as well as last Friday’s surprisingly strong Canadian payrolls, notes Michael Pfister, FX analyst at Commerzbank.
CAD is not expected to recover significantly in the coming weeks
“In fact, this development preceded yesterday’s Canadian inflation numbers. However, the numbers intensified the move in the afternoon and ensured the market moved further towards the view that there could be one or even two rate cuts.” of 50 basis points each in the next two meetings. This was driven by the surprisingly sharp drop in the headline rate to 1.6% year-on-year.”
“While core inflation measures are still just above the midpoint of the 1-3% target range, the headline rate is now raising concerns that the inflation target is falling short. The pace of disinflation has been so has been quick lately that the BoC’s three 75bp rate cuts to date are not enough to make monetary policy less restrictive.”
“We were already inclined to expect a 50bp cut in October after BoC Governor Tiff Macklem’s pretty clear comments about faster rate cuts, but after yesterday’s numbers this should be almost a foregone conclusion. And Unless inflation picks up in the coming months, another 50bp cut is likely in December. Therefore, we remain skeptical that the CAD will recover significantly in the coming weeks. “They should therefore look for USD weakness rather than CAD strength.”
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
