April 08, 2024 20:49 GMT
BofA: Market Underpricing BoC Cuts
CANADA
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- BofA “expect the BoC to remain on hold with the policy rate at 5.0% on April 10, but to open the door to a cut in June” before 125bp of cuts to end-2024.
- “We believe the table is set for the BoC to start a cutting cycle: inflation surprised to the downside in January and February, unemployment jumped to 6.1% in March from 5.8% in February, and the output gap is around zero (although activity improved at the margin).”
- “We believe the market is underpricing BoC cuts [roughly three 25bp cuts in 2024] and therefore front-end CA rate outperformance. We prefer staying long CA rates vs US and express bearish CAD views on the crosses in the case of a dovish outcome for the April BoC. In G10, we are most bullish AUD/CAD.”
- “Our base case is currently for QT to end with the first cut in June with risks skewed to later.”
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