Standard Chartered: CAD Attractive On BoC Dovish Disappointment

Standard Chartered note that they are "optimistic on the CAD, forecasting USD/CAD at C$1.15 by end-2022, but we expect the BoC to sound a cautious note at its 27 October meeting. In our view, the issue is risk management. If a hike is coming in late Q1 or early Q222, the BoC will have an opportunity to telegraph the move. Canada's economic data should continue to support an early move, in our view, but there is enough uncertainty on the outlook for the BoC to avoid a clear signal at this meeting. The BoC is widely expected to taper weekly government bond purchases to C$1bn, roughly enough to stabilise its portfolio."

• "Cumulatively, about 22bp of hikes are priced in for the March meeting and 34bp for April; any hesitancy would probably unwind some of this pricing and nudge USD/CAD upwards. The source of this potential hesitancy is that employment has some way to go to regain previous trends. Canada is still about 0.5mn full-time jobs and about 0.65mn total jobs short of the pre-COVID trend. In our view, this is enough to prompt the BoC to wait a bit until the gap narrows. Inflation is above the target range (on a core and trimmed basis), but we think the BoC sees avoiding a clear hawkish signal now as more prudent than signalling a hike and risking a reversal in case of negative surprises."
• "We think any CAD weakness will be temporary and present an opportunity to go long at more attractive levels. Medium-term, we see much more upside than downside for the CAD. This is based on how commodity and energy prices have moved, the BoC's stronger appetite for normalisation than most G7 central banks, and the likely strong rebound in Canadian activity."