The Bank of Canada (BoC) will announce monetary policy today. A 50 bps hike would likely send CAD higher, but the FX reaction should be short-lived, economists at ING report.

Not many long-term implications for CAD

“The consensus is split between a 25 bps and 50 bps hike, but we believe a half-point move looks more appropriate given strong economic activity and a very tight labour market. Still, we admit it is a very close call given that the expected economic slowdown and fragility of the Canadian housing market argue for a smaller rate increase.”

“In our base-case 50 bps scenario, the Canadian Dollar should rally on the back of the hawkish surprise. However, we don’t see the BoC impact on CAD to be very long-lasting, as external factors remain more important.”

“A sustained recovery in CAD from these levels undoubtedly requires a rebound or at least a stabilisation in oil prices. Today, USD/CAD could trade back below 1.3600, but short-term upside risks remain high.” 

See – BoC Preview: Forecasts from nine major banks, very close call