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24 Sep 2014
BoC in no hurry to hike rates - Nomura
FXStreet (Bali) - According to Charles St-Arnaud, Economist at Nomura, with BoC in no a hurry to hike rates, it could lead to divergence with Fed policy.
Key Quotes
"Some recent events have pushed some investors to believe that we could see a change in the BoC tone. However, a close look at the details suggests that these events are unlikely to change the BoC’s view of the economy."
"(1) The increase in core inflation continues to be driven by a subset of factors that are not influenced by the level of excess capacity. (2) Recent speeches and interviews by BoC’s senior officials continue to suggest genuine concerns regarding growth, a willingness to allow inflation in the upper band of the inflation target and that rates are likely to be lower for longer. (3) The strength in the manufacturing sector and exports in July is attributable to seasonality in motor vehicle production and will likely be reversed. As a result, the BoC is expected to stay on hold until July 2015. While the BoC remains cautious on the outlook, the Federal Reserve is gearing up for its first rate hike. We believe that this policy divergence will lead to upside pressure on USD/CAD and we expect it to reach 1.15 by year-end."
"Some recent developments, mainly the upward surprise to core inflation, the recent speech by Gov Poloz on foreign exchange and some strong manufacturing and trade data, may have pushed some investors to believe the BoC could gradually start to sound less concerned by the outlook and even maybe start to sound hawkish. However, in looking at the details, we believe none of those signals a change in the way the BoC views the Canadian economy. As such, we believe the BoC will remain on hold until July 2015."
Key Quotes
"Some recent events have pushed some investors to believe that we could see a change in the BoC tone. However, a close look at the details suggests that these events are unlikely to change the BoC’s view of the economy."
"(1) The increase in core inflation continues to be driven by a subset of factors that are not influenced by the level of excess capacity. (2) Recent speeches and interviews by BoC’s senior officials continue to suggest genuine concerns regarding growth, a willingness to allow inflation in the upper band of the inflation target and that rates are likely to be lower for longer. (3) The strength in the manufacturing sector and exports in July is attributable to seasonality in motor vehicle production and will likely be reversed. As a result, the BoC is expected to stay on hold until July 2015. While the BoC remains cautious on the outlook, the Federal Reserve is gearing up for its first rate hike. We believe that this policy divergence will lead to upside pressure on USD/CAD and we expect it to reach 1.15 by year-end."
"Some recent developments, mainly the upward surprise to core inflation, the recent speech by Gov Poloz on foreign exchange and some strong manufacturing and trade data, may have pushed some investors to believe the BoC could gradually start to sound less concerned by the outlook and even maybe start to sound hawkish. However, in looking at the details, we believe none of those signals a change in the way the BoC views the Canadian economy. As such, we believe the BoC will remain on hold until July 2015."