CAD: Guided by the BoC – HSBC

Analysts at HSBC point out that the CAD rallied as the FX market began to price in a rising probability of the BoC hiking rates at its September meeting which followed strong data with the Q2 GDP release. 

Key Quotes

“In the week leading up to the BoC rate announcement on 6 September, the probability of a hike fluctuated around the 50% mark according to Canadian OIS. This was higher than the economists surveyed by Bloomberg, where only six of the 29 expected a hike. When the BoC voted to hike rates the loonie rallied sharply and USD-CAD fell below 1.22. Not only had the September rate hike materialised, but the market was now looking at the possibility of a further hike later in the year. But these hopes were dampened on 27 September as BoC Governor Poloz said the central bank would act ‘cautiously’ with any further rate rises.”

“On the data front a strong labour report was released on 8 September. The change in employment of 22.2k was above expectations and the unemployment rate fell to 6.2%, its lowest level since 2008. On 22 September, retail sales printed above expectations at 0.4% MoM and CPI rose to 1.4% YoY. This robust data likely comforted the BoC that their decision earlier in the month to hike rates was justified and helped the CAD to edge up 0.5% against the USD in September.”