BoC: Announcement reaffirms that risks in 2023 skew towards more tightening – TDS

The Bank of Canada, as expected, left the key interest rate unchanged at 4.50%. USD/CAD moved modestly to the downside. Analysts at TD Securities look for the BoC to remain at 4.50% for all of 2023.

BoC is playing wait-and-see 

“Forward guidance was not materially changed, but the communique leaned on the hawkish side with the Bank acknowledging that returning to 2% inflation could prove difficult.”

“We still look for the Bank to remain at 4.50% for all of 2023, as we do expect growth to slow markedly in Q2. That said, if the expected softening in the labour market does not emerge, the BoC may have little choice but to tighten again. With markets likely to give the BoC a pass in June, we see more risk for rate hikes in the July and September meetings.”

“There’s isn’t much for CAD to latch on regarding the BoC announcement. The tone of the statement underscores more of a hawkish hold scenario, which has likely helped USDCAD nudge lower. USDCAD HFFV sits below 1.34, suggesting that the pair is trading rich to macro drivers. We continue to like 1.33/1.37 range and look to fade the extremes of that range.”