BoC’s easing bias poised to prevail near term – TDS

FX Strategists at TD Securities expect the Bank of Canada to hike rates at some point during the second quarter of 2018.

Key Quotes

“Q1 real GDP estimates continued to push higher, with our current tracking at 3.4%. The stronger footing in 2017 points to an earlier closing in the output gap by 18H1. Accordingly, we pull forward our call for the first rate hike to occur in 18Q2, followed by an additional hike in 18Q4. That said, the BoC's dovish tone is likely to linger in the near-term as underlying inflation measures continued to weaken through March”.

“We think USDCAD is in gradual topping process though we acknowledge that CAD is unlikely to benefit from global reflation given reliance on US growth. Still, better domestic growth tracking and an earlier closure of the output gap suggest tepid core inflation will eventually respond in kind. We see greater strategic value in EURCAD topside as markets look ahead for an ECB pivot towards less accommodation”.