BoC monetary decision perhaps not as close a call as before - MUFG
Derek Halpenny, European Head of GMR at MUFG, suggests that a month ago, MUFG were of the belief that the BoC would ease its monetary stance when it met for the final time this year.
Key Quotes
“That is today but events over the past month have altered the balance of risks and we are now of the view that the BoC will hold off from action despite details from the last meeting revealing that monetary easing was under serious consideration.”
“Those events are of course firstly the election of Donald Trump as US President and secondly the price action in the crude oil market following the OPEC production cut deal last week. Furthermore, in a speech on 28th November, Governor Poloz stated that “the situation hasn’t really changed much” from the last policy meeting when the extent of uncertainty led the BoC to refrain from easing. Governor Poloz in the same speech also repeated the BoC view that the spare capacity in the economy would not be removed until the middle of 2018, as was estimated in October.”
“The uncertainty of course of who is president has been removed but the uncertainty over the policy outlook remains. It seems logical for the BoC to await further information on whether Trump’s focus will be on reflation of the domestic economy, which would potentially benefit the Canadian economy, or focus on renegotiating trade deals like NAFTA, which might prove negative for the economy.”
“For the Canadian dollar, the current price of crude oil looks consistent with USD/CAD trading in a 1.3300-1.3500 range covering the period since crude oil prices crashed in mid-2014. The upturn in crude oil prices has helped underpin the Canadian dollar which from a US-CA spread perspective should be a lot weaker given the surge in US yields post-election. Hence, a decision to leave policy unchanged today is unlikely to lift the Canadian dollar much, especially given market expectations have been drifting that way since Trump’s victory and the OPEC deal anyway.”