Looking ahead to this week's BoC meeting, I have been surprised at the level of aggressive pricing towards more rate hikes to come, with the Q2 GDP rate at 4.5% prompting some to call for another 25bp move later today. This would mean consecutive hikes from the BoC, and in the current climate where all central banks are keen to proceed with caution, looks unlikely despite some of the odds generators reaching 50% last week.
On their outlook, few can argue against the strong backdrop of output growth, eating further into capacity which is keenly monitored, but against this, we have to start factoring in the pace of currency appreciation. There is every chance that the statement will make some reference to the speed of the move rather than levels, much as has been been done by the likes of the ECB more recently and the BoJ in the past, as well as the RBA and RBNZ on a consistent basis.
Other factors against the BoC pursuing an aggressive stance include household debt levels, something which was reported to have caused PM Trudeau some concern over the central bank's bullish statement last time around. The housing market has cooled off a little in the meantime, but remains elevated alongside said debt.
Then we come to inflation, and among the major economies, Canada's CPI rate at just 1.2% is something to watch out for. Despite strong growth, the bottoming out effect will also be impacted by the higher exchange rate with the USD and is another factor which should lead gov Poloz and Co. to insist on data watching from here rather than jumping the gun and reversing both rate cuts seen in 2015.
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