BOC PREVIEW: THREE SCENARIOS AND THEIR IMPLICATIONS FOR USD/CAD – TDS

Economists at TD Securities discuss the Bank of Canada (BoC) Interest Rate Decision and its implications for the USD/CAD pair.

Base Case: Mildly Hawkish (65%)

Bank leaves overnight rate at 5.00% as it waits for more progress on underlying inflation. Statement repeats that higher rates continue to restrain demand despite stronger Q4 GDP, inflation pressures still too broad. No substantive change to guidance. USD/CAD -0.10%.

Slightly Dovish: (30%)

Bank leaves overnight rate at 5.00% as it monitors progress. Statement notes that higher rates continue to restrain demand as economy moves further into excess capacity. Last paragraph softens language around inflation risks but rest of guidance unchanged as BoC repeats desire for further/sustained easing. USD/CAD 0.25%.

Extremely Dovish (5%)

Bank leaves overnight rate at 5.00% but opens door to near-term cuts with guidance shift. Statement notes that soft growth has added to excess supply and that price pressures have softened considerably since January meeting. Guidance removes reference to inflation risks and softens language around GC wanting to see further progress. USD/CAD 0.60%.