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CANADA: Intermeeting BoC Cut Prospects Look Unlikely [1/2]

CANADA
CanadaBulletMarketsFixed Income BulletsForeign Exchange BulletsNorth America
  • US President Trump’s unveiling of 25% tariffs on Canada (with only limited carve-outs of 10% for energy) saw odds of an intermeeting cut from the BoC rise with one-month OIS showing sustained readings of 4-5bp of cuts.
  • That has since pushed back to 2bp of cuts with optimism that Canada will see a repeat of the one-month delay Mexico negotiated earlier today. Trump and Trudeau talked earlier today and have another call set for 1500ET – should nothing concrete come of it it’s possible that we start to see a move back towards the 4-5bp of cuts.
  • We think those levels overplay the likelihood of a BoC inter-meeting cut for various reasons (below) and see the 25bp cut priced for the actual next meeting on Mar 12 as a better indication of the BoC’s path from here.
  • Whilst still almost six weeks away, this gives the Bank time to assess any changes, including a potential fiscal response which is still unclear for now. Should it then need to, it could always return to the 50bp cuts seen in Oct and Dec but in a more controlled manner than surprising inter-meeting.
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One-month OIS  Source: Bloomberg
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  • US President Trump’s unveiling of 25% tariffs on Canada (with only limited carve-outs of 10% for energy) saw odds of an intermeeting cut from the BoC rise with one-month OIS showing sustained readings of 4-5bp of cuts.
  • That has since pushed back to 2bp of cuts with optimism that Canada will see a repeat of the one-month delay Mexico negotiated earlier today. Trump and Trudeau talked earlier today and have another call set for 1500ET – should nothing concrete come of it it’s possible that we start to see a move back towards the 4-5bp of cuts.
  • We think those levels overplay the likelihood of a BoC inter-meeting cut for various reasons (below) and see the 25bp cut priced for the actual next meeting on Mar 12 as a better indication of the BoC’s path from here.
  • Whilst still almost six weeks away, this gives the Bank time to assess any changes, including a potential fiscal response which is still unclear for now. Should it then need to, it could always return to the 50bp cuts seen in Oct and Dec but in a more controlled manner than surprising inter-meeting.
image
One-month OIS  Source: Bloomberg