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CANADA: Hawkish CPI Surprise Could See Three Consecutive Cuts At Risk

CANADA
  • BoC-dated OIS shows a little more than a 25bp cut priced for Sep 4 and continues to keep close to a cumulative 75bp of cuts to year-end.
  • We think there would have to be significant CPI surprises in either direction to move materially away from a 25bp cut in September. 
  • Instead, those three cuts over Sep, Oct and Dec as a whole (for 125bp of cuts this year) could be more sensitive to today’s print. 
  • The July minutes clearly pushed the more symmetrical profile to inflation risks but a willingness to take decisions one meeting at a time and prior desire for a gradual lowering of rates could see markets shift a little closer to contemplating a brief pause narrative for either the Oct or Dec meetings in the event of a hawkish surprise.
  • 2Y GoC yields currently sit unchanged vs 2Y Tsy yields -2.6bps, which sees the Can-US differential lift to -71.5bps. That’s close to post-payrolls averages, off June lows of -90bps after the BoC instigated its cutting cycle but still depressed historically.  
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