Forex Analysis

BoC preview - market looking for a dovish hike?

Looking at the price action in CAD across the board, there is little sign that specs are worried about the near 85% chance of a BoC rate hike tomorrow.  Governor Poloz has been hinting at another rate move as central banks the world over take the opportunity to normalise rates in preparation for the next economic downturn.  For now, the BoC sees the economy running closer to full capacity, and despite the disruptive influence of trade tariffs, the outlook is stable.  

There are naturally concerns over household indebtedness, which ranks among the highest among the developed nations.  As of 2016, total share of household debt to GDP stood at nearly 100% compared to the US at just under 79% and the UK at 87.5%.  Naturally, the BoC will be monitoring the impact on mortgage holders, with the added concerns over house prices which have endured a volatile period off the back of strong foreign buying ramping up prices in the major cities.  

Consequently, higher debt servicing costs ahead may prompt the central bank to ease their tone in the MPR beyond this rate hike (if it comes).  As further inflationary forces putting could added pressure on spending habits, emphasis will have to be placed on output and investment thereon, though hiring has increased as we saw in the payrolls report last week so expansionary dynamics remain positive for now.


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