23 Jun 2014
Unlikely the BoC will hike before the Fed - ING
FXStreet (Łódź) - According to Rob Carnell from ING, following the release of data on Friday showing CPI at a 27-month high, it will be more and more difficult for the BoC to keep rate hike expectations contained in the coming months.
Key quotes
"The highlight of Friday’s data was that core CPI climbed to 1.7%, a level not seen since 2012, indicating that temporary factors are not the only explanation for the higher headline rate of inflation."
"This makes things increasingly difficult for Governor Poloz. On one hand, exports and investment are showing little sign of recovery, so maintaining the perception that rate hikes are a way off is crucial if firms are to gain confidence and CAD is to remain weak."
"However, even though seasonality will likely hold back June’s inflation rate, overall 2Q CPI data should put both the core and headline rates of inflation significantly above the BoC’s April forecast."
"They had forecast that core inflation would not average above 1.7% before the second quarter of 2015. Therefore, the bank could find it increasingly difficult to carry on using inflation as a credible justification for its current stance, at a time where it is keen to keep expectations of policy normalisation under control."
"Nevertheless, despite Friday’s inflation data, we still think that the current macro outlook makes it unlikely that the BoC will hike before the Fed and will probably do so at least one quarter later."
"With this in mind, we see room for further CAD depreciation over the coming months as the market’s medium-term outlook for policy in the US and Canada start to diverge."
Key quotes
"The highlight of Friday’s data was that core CPI climbed to 1.7%, a level not seen since 2012, indicating that temporary factors are not the only explanation for the higher headline rate of inflation."
"This makes things increasingly difficult for Governor Poloz. On one hand, exports and investment are showing little sign of recovery, so maintaining the perception that rate hikes are a way off is crucial if firms are to gain confidence and CAD is to remain weak."
"However, even though seasonality will likely hold back June’s inflation rate, overall 2Q CPI data should put both the core and headline rates of inflation significantly above the BoC’s April forecast."
"They had forecast that core inflation would not average above 1.7% before the second quarter of 2015. Therefore, the bank could find it increasingly difficult to carry on using inflation as a credible justification for its current stance, at a time where it is keen to keep expectations of policy normalisation under control."
"Nevertheless, despite Friday’s inflation data, we still think that the current macro outlook makes it unlikely that the BoC will hike before the Fed and will probably do so at least one quarter later."
"With this in mind, we see room for further CAD depreciation over the coming months as the market’s medium-term outlook for policy in the US and Canada start to diverge."