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Retracing The Dovish BoC Reaction

CANADA
  • GoCs and USDCAD have pulled back from earlier highs with the BoC press conference over and the full suite of communications digested.
  • 2Y GoC yields are 8.9bps lower on the day (-3bps post-decision) and have seen the Can-US 2Y yield differential fall 1.5bps to -76.7bps post-decision (that was -3bps prior to Macklem's press conference and surprisingly soft new home sales). It remains off the -90bps seen in days after the first BoC cut but is still depressed historically.
  • BoC-dated OIS however hasn’t seen the same retracement, holding a shift to 15-16bp of cuts for the next meeting in September vs the circa 50/50 call for a 25bp cut implied prior to the meeting. It’s supported by no sign of the concern in the recent uptick in core inflation and talk of not wanting to see any additional excess supply.
  • USDCAD at 1.3786 is back at pre-decision levels, off the latest high of 1.3808 in what was another step closer to the bull trigger at 1.3846 (Apr 16 high).
  • EURCAD meanwhile set a new ytd high of 1.4998 earlier (currently 1.4966). Recall that having pierced downtrend resistance drawn from 2023 highs ahead of last week’s ECB decision, it’s opened key targets of 1.5045 and 1.5113 for the cross.
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