MUFG Sees Limited Upside for Canadian Dollar Ahead of BoC Decision
The Canadian dollar's upside is likely to be limited as the Bank of Canada is seen maintaining a cautious policy stance on Wednesday amid a mixed economic outlook and easing inflation pressures, according to MUFG Bank. With markets pricing nearly 20 basis points of tightening by year-end, cautious BoC messaging that signals a prolonged hold could challenge current rate expectations, wrote Derek Halpenny, head of research at MUFG, in the note. While yield spreads have recently turned more supportive of a lower USD/CAD, they "are still at levels that point to downside risks" for the Canadian dollar, added Halpenny. Trade uncertainty, potential equity volatility from Artificial Intelligence-related concerns and a weaker link between crude prices and the Canadian dollar also constrain the loonie's upside, said the bank. With the BoC likely to remain on hold, Canadian dollar "risks are skewed to the downside." Canada's central bank is scheduled to release its policy decision at 9:45 a.m. ET Wednesday, with a press conference led by Governor Tiff Macklem set for an hour later.
The Canadian dollar's upside is likely to be limited as the Bank of Canada is seen maintaining a cautious policy stance on Wednesday amid a mixed economic outlook and easing inflation pressures, according to MUFG Bank.
With markets pricing nearly 20 basis points of tightening by year-end, cautious BoC messaging that signals a prolonged hold could challenge current rate expectations, wrote Derek Halpenny, head of research at MUFG, in the note.
While yield spreads have recently turned more supportive of a lower USD/CAD, they "are still at levels that point to downside risks" for the Canadian dollar, added Halpenny.
Trade uncertainty, potential equity volatility from Artificial Intelligence-related concerns and a weaker link between crude prices and the Canadian dollar also constrain the loonie's upside, said the bank.
With the BoC likely to remain on hold, Canadian dollar "risks are skewed to the downside." Canada's central bank is scheduled to release its policy decision at 9:45 a.m.
ET Wednesday, with a press conference led by Governor Tiff Macklem set for an hour later.