BofA: Preview for Wednesday’s BOC coverage assembly and CAD outlook

Financial institution of America supplies a preview for the upcoming Financial institution of Canada coverage assembly on December 6 and its implications for the Canadian greenback. BofA expects the BOC to keep up its present coverage charge, with potential implications for future charge cuts and CAD efficiency.

Key Factors:

• BoC Anticipated to Maintain Charges: BofA anticipates the BoC will keep the in a single day charge at 5.0% within the December assembly.
• Financial Weak spot and Inflation Developments: The Canadian economic system confirmed weak point with a GDP contraction in Q3, and whereas inflation is falling, core inflation stays excessive. This combined image suggests continued warning from the BoC.
• Potential Shift in BoC Language: There’s a threat that the BoC would possibly shift from a “hawkish hold” to a “dovish hold” in its language, though BofA believes it is likely to be too early for such a change.
• BoC Price Reduce Cycle in 2024: BofA expects the BoC to start out slicing charges in June 2024, with the opportunity of an earlier begin if inflation strikes decrease.
• Comparability with US Price Cuts: Slower progress in Canada would possibly enable for quicker charge cuts in comparison with the US.
• CAD Efficiency: Amid the broad USD selloff, the CAD is anticipated to lag behind different G10 high-beta currencies till the Fed begins its rate-cutting cycle.
• Seasonal CAD Developments: December historically exhibits probably the most bearish traits for CAD in opposition to the New Zealand Greenback (NZD) and Scandinavian currencies.

Conclusion:

BofA’s preview of the BoC’s December coverage assembly signifies a chance of sustaining the present charge, with cautious monitoring of inflation and financial traits. The potential for a shift in language from the BoC in the direction of a extra dovish stance, and the expectations for charge cuts in 2024, might impression CAD’s efficiency, particularly compared to different G10 currencies and within the context of broader USD actions. CAD is more likely to underperform in opposition to high-beta currencies till the Fed commences its rate-cutting cycle, with particular bearish traits anticipated in opposition to NZD and Scandinavian currencies in December.

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