What to expect from the Bank of Canada today

Overall the consensus is for a hike with only TD Research and Goldman Research forecasting the BOC to stay on hold. On the CAD front, the consensus is that a hike is largely in the price and as such risk-reward seems to favor fading CAD strength around the meeting.

TD Research: We still think it is likely to be a much closer call than current market pricing suggests and look for the Bank to deliver a hawkish hold instead of a 25bp rate hike. Given that the rates market is pricing in close to a 100% of a hike and the FX market appears to have front-loaded a more hawkish outcome we continue to see scope for USDCAD to consolidate on our out of consensus call....This leaves us looking for a squeeze higher in USDCAD.

Goldman Sachs Research: While a close call, we see the BOC on hold this week).We now see less attractive risk/reward in USDCAD downside, as expectations around the Bank of Canada have shifted very quickly.

Citi Research: Citi argues that as the BoC rate hike this week may have been priced in by markets, investors may sell on fact which may restrain CAD in the short term. On the technical front, Citi notes that the RSI reading for USD/CAD has reached oversold levels.

CIBC Research: CIBC shares the market expectations that the BoC will hike interest rates this week. However CIBC notes that one factor that could give Poloz caution is the recent appreciation of CAD.

BTMU Research: BTMU argues that while a rate hike from the BoC this week is largely in the CAD price, market participants will have to watch closely the updated guidance from the BoC for signals over the likely pace of further rate hikes. "BTMU still sees scope for the loonie to strengthen further in the near-term lowering USD/CAD towards the 1.2500-level if the BoC signals that it plans to follow up with a second rate hike relatively quickly before the end of this year.

BNPP Research: We expect the BoC to deliver a 25bp rate hike at this week's meeting. Rates markets are pricing in an 88% chance of a rate hike at the meeting and a nearly 70% chance of further tightening by the end of the year," BNPP argues. This leaves the CAD vulnerable in the event that the recent gains in the CAD lead the central bank to postpone tightening or deliver cautious guidance on further hike.

Morgan Stanley Research: The balance has shifted markedly toward a rate hike from the BoC next week, based on recent BoC rhetoric. Because a rate increase is almost entirely priced in, we believe a hike in itself should not move CAD significantly. The main driver will be the Governing Council's guidance on the path of rates going forward.

Credit Agricole Research: In line with market expectations, our economists expect the central bank to tighten monetary policy by 25bp. Considering still muted inflation, such policy action should be regarded as a removal of insurance policy cuts rather than the start of a new tightening cycle. This is especially true as it was just recently explained that the economy has been adjusting itself to weaker commodity price developments. When it comes to the CAD, such an outcome is unlikely to trigger sustained upside, especially as markets already price in a close to 90% probability of it occurring.

Barclays Research: Although it is a close call, we now forecast the BoC to increase its target rate 25bp at the meeting, in line with consensus and market pricing. The BoC is likely to dampen market expectations of a full-blown hiking cycle and to stress that the removal of accommodation will be gradual, starting with withdrawing the "insurance cuts" of 2015. The reinforcement of the cautious message would be given at the press conference for the release of the MPR, at 11:15 AM EST, one hour and fifteen minutes after the publication of the rate decision (10 AM EST).

BofAML Research: We expects the Bank of Canada (BoC) to hike 25bp on 12 July, with a neutral statement. "Strong GDP growth in the last three quarters is a clear indication that the economy does not need as much monetary stimulus as provided by two 25bp cuts in 2015, when the economy was in a recession.We believe conditions are right for the BoC to start withdrawing some of that stimulus. We still see CAD as somewhat overvalued, especially in light of the recent moves in oil as well, and expect a higher USD-CAD at the end of the year, to 1.35.

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