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Forecast 25bp BOC Cut In July, With A Further 50bps Of Easing In Q4

CANADA
  • The 25bp cut marks the first step on the path back to neutral. The BoC's desire for further easing of inflation pressures sets a relatively low threshold to future cuts, despite its desire to keep all options on the table, and history shows the Bank has a tendency to move twice in a row.
  • As such, we look for another 25bp cut in July, with another 50bps of easing in Q4 bringing the overnight rate to 4.00% by year-end.
  • On rates, TD continue to see notable edge in their steepener lean in Canada near-term. TD feel continued momentum in Canada is very likely as the dovish regime in Canada is now in motion without question.
  • The combination of highly levered households and the ongoing drag from mortgage renewals leaves scope for economic divergence between CA and US, and accordingly the BoC and Fed. TD like USDCAD higher not just on Fed/BoC divergence but also from their quant model perspective.
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