The Bank of Canada (BoC) is set to raise interest rates for a third consecutive meeting. Economists at ING expect 50bp by the BoC today, but 75bp is possible. Regarding the loonie, the USD/CAD pair is unlikely to climb above the 1.2700/50 region.

Strong macro picture means that a 75bp move cannot be excluded

“50bp is our base case scenario for today, given the strong economy (and an outlook helped by high commodity prices) and jobs market, as well as elevated inflation. Against such a macroeconomic backdrop, we don’t exclude a 75bp move.”

“As we see a 50bp hike as more likely, there are some downside risks for CAD today, as markets may have to price some 10-20bp out of the CAD swap curve.”

“We think that the BoC will reiterate a very strong commitment to fighting inflation and allow markets to consolidate their bets on at least another 50bp hike in July and a terminal rate around 3.0%. Ultimately, this should put a floor under the loonie, and may not depreciate beyond the 1.2700/1.2750 area even if the 75bp bets have to be scaled back today.”

See – BoC Preview: Forecasts from six major banks, hawkish hike