UBS Expects Bank of Canada to Stay Put, Sees Limited Scope for Canadian Dollar Gains

The Canadian dollar's recent gains may be difficult to sustain as the Bank of Canada is unlikely to significantly shift its policy stance at Wednesday's policy meeting, prompting markets to reassess expectations for future rate hikes, according to UBS Global Research. USD/CAD has already eased from overbought levels, declining from a recent high of 1.4250 to around 1.4150, in line with the typical size of previous one-month technical corrections, wrote the bank in a note Wednesday. A rebound in oil prices has also supported the Canadian dollar. "The main challenge we see is the market now prices a 25bp BoC hike this year, which we do not think will be delivered," wrote UBS foreign exchange strategists in the note. A repricing of those expectations could put recent Canadian dollar gains under pressure, they added. Canada's central bank is slated to release its policy decision at 9:45 a.m. ET Wednesday. The BoC faces a challenging balance between weak economic activity and rising consumer inflation expectations. With economists expecting little change in its messaging, the immediate impact on the Canadian dollar is likely to be limited, said UBS. Broader US dollar and Federal.