The swift re-ordering has left the market off-balance about what the Bank of Canada might do at Wednesday's meeting. At the moment, the OIS market pricing is for a 45% chance of a rate cut and a 55% chance of no change.
Since then, Canada has seen some better news on tariffs but the uncertainty remains extremely high and the global picture has worsened. Today's CPI report added to the reasons to cut with prices falling to 2.3% from 2.6% y/y, which was 0.3 pp below what economists were expecting.
Finally, indications on the spring housing market so far have been poor. The inventory of homes for sale in the Toronto area is already above last year's peak and the condo market is frozen, with home builders rapidly halting projects.
All of this argues for a rate cut on Wednesday but the consensus of economists remains for no change for 2.75% but it's narrow with 18 seeing a hold and 11 forecasting a cut.
The currency market reaction to the BOC decision might be counter-intuitive, particularly after the kneejerk. Normally, a currency will fall after a rate cut, particularly when one isn't fully expected.
With that in mind, I would considering selling USD/CAD on a rise above 1.40 in the aftermath of a BOC cut. At the same time, it's a difficult currency to trade at the moment based on Canadian fundamentals alone because there are tariff headlines that move the USD and risk assets daily, so any trade requires a nimble approach.
The decision is at 9:45 am ET.
This article was written by Adam Button at www.forexlive.com. Read More Details
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