Surprisingly, the Bank of Canada (BoC) ended QE, pointing to the possibility of an earlier rate hike. The CAD strengthened immediately after the announcement, before giving back some of its gains amid lower oil prices. Further CAD gains could be sustainable over the longer term, if terminal rate pricing can be extended, in the view of economists at HSBC.

The longer-term outlook for the CAD could depend on terminal rate pricing

“The BoC’s decision is likely to provide some near-term support to the CAD, and oil prices will remain part of the equation for the CAD. It is possible for oil prices to extend a rally that has been running in earnest now for 18 months, while our oil and gas analysts see oil prices dropping next year as US supply returns.”

“If markets see the BoC’s hawkishness as a sign that terminal rate pricing can be extended, this would potentially point to more sustainable gains for the CAD.”