In anticipation of the upcoming policy announcement by the Bank of Canada (BoC), analysts at TD Securities (TDS) have provided their perspectives on what to expect and how it might influence the Canadian Dollar.
According to TDS analysts, the prevailing expectation is for the BoC to maintain its current interest rates at 5.00% during its April meeting. They anticipate a cautious stance from the central bank, as indications of resurging growth momentum may deter it from overly committing to recent strides in underlying inflation.
In the words of TDS analysts, “We look for the BoC to hold rates at 5.00% in April and strike a cautious tone as signs of renewed growth momentum prevent it from leaning too heavily into recent progress on underlying inflation.”
Regarding the yield curve, analysts at TDS find little resistance in advocating for 2s5s and 5s30s steepeners. They perceive potential value of up to 50 basis points in receiving 1y1y. Additionally, they assert confidence in the technical supply dynamics further along the curve, cautioning against betting against it.
“We are hard-pressed to find a strong narrative that argues against 2s5s and 5s30s steepeners. We see up to 50bps of value in receiving 1y1y, and further out the curve we feel the technical supply story is strong and clear, and we wouldn’t want to bet against it,” stated TDS analysts.
Looking ahead, TDS analysts predict that the BoC will maintain a cautious tone as it awaits more concrete evidence before signaling the initiation of its easing cycle. They suggest that the upcoming meeting is unlikely to substantially sway the Canadian Dollar, with data continuing to be the primary determinant.
“The BoC is likely to retain a cautious tone as it waits for more evidence before signaling the start of its easing cycle. The meeting is unlikely to materially move the CAD and data remains in the driver’s seat,” remarked TDS analysts.
As investors await the BoC’s decision, the insights provided by TDS analysts offer valuable perspectives on the potential implications for the Canadian Dollar in the near term.
