BoC Preview: The consumer question – Rabobank

Christian Lawrence, Senior Market Strategist at Rabobank, offered a preview of Wednesday's key event risk – the latest monetary policy update by the Bank of Canada (BoC) – and near-term outlook for the USD/CAD pair.

Key Quotes:

“We expect the Bank of Canada to leave the policy rate unchanged at 1.75% on 22nd January. This is unanimously expected by the analysts surveyed by Bloomberg (including ourselves) and CAD OIS implies almost no chance of a move. There is only around a 50% chance of a 25bp cut pencilled in by the end of 2020. We remain of our long held (since the 2019 H1) view that the BoC will begin easing rates in 2020 Q2.”

“That said, our projected easing path for 2020 (three 25bp cuts) is predicated on RaboResearch’s expectation that the Fed will begin easing in April and continue to 0%. The big question mark for Canadian activity remains consumption. In 2019, our expectation of weak investment and trade was proven correct but households held up better than we envisaged. In 2020, we still expect soft investment and trade, and we do see a softer consumer sector igniting the BoC’s easing bias.”

“In terms of USD/CAD, we have revised down our call for a 1.32-1.34 range to 1.30-1.32 which we expect to dominate price action in the coming months. As we move into Q2 there is room for a test of 1.33 but we expect a move back to 1.32 as we head into the middle of the year.”