Morgan Stanley (MS) came out with hawkish expectations for the January monetary policy meeting of the Bank of Canada (BOC) while forecasting a surprise rate hike boosting the Canadian Dollar (CAD).

The investment bank highlights recently strong employment figures as the key factor behind the upbeat consensus. “The December employment report was very strong (headline employment, full-time vs. part-time jobs, and the regional breakdown indicated a robust labor market), which should contribute to a repricing in near-term rates and support CAD.”

On the same line is the Fed’s shift towards the tighter monetary policy as the MS said, “The Fed's ongoing shift towards a tighter policy stance should spill over to Canadian real yields - the 10y inflation-linked Canadian is at a post-COVID high. Higher real yields in Canada, in turn, should support CAD as oil prices continue to grind higher to our 3Q 22 $90bbl Brent oil forecast."

It’s worth noting the BOC’s first monetary policy meeting of 2022 is on January 26.

Read: USD/CAD Price Analysis: Bears to target 1.2480 on a breakout below daily H&S neckline