Barclays Research discusses CAD outlook in light of the prospect of US-Canada trade deal.
“We believe the BoC is comfortable with delivering a near-term hike, supported by data, but only if NAFTA negotiations show progress.
Furthermore, comments by Deputy Governor Wilkins were on the hawkish side, by affirming that the Board discussed whether to accelerate the pace of interest rate hikes before deciding to keep a gradual path. In our view, NAFTA is the biggest risk to the current outlook and a breakdown in talks would delay any rate action,” Barclays argues.
“Given current market pricing, a rate hike in October would bring limited upside to the loonie, while the possibility of a trade shock to the economy is still real. A delay in the tightening cycle would likely bring a re-pricing of rates and USDCAD upside,” Barclays adds.