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GS See Largest Discrepancy In CAD Rates Across G10, Re-Engaging in BAZ2 Shorts

CANADA
  • Despite the headline CPI miss and a “somewhat more encouraging signal” from the more sideways move in the key core measures, Goldman’s baseline remains a 75bp hike in Sep and a terminal 4.25% reached early next year.
  • This is in contrast to market pricing, which has come off from the highs—with only a 50bp hike now priced in Sep and terminal closer to 3.5% by Dec – but the rally appears largely Europe recession-driven.
  • With a relatively flat path priced beyond October, the market-implied terminal currently sits roughly 75bp below our economists’ projection, the largest discrepancy across G10.
  • With relatively resilient domestic fundamentals, CAD rates should be better insulated from European spillovers, and recommend re-engaging in BAZ2 shorts.
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