BoC tips the market towards July - Nomura

The Bank of Canada removed “cautious” from the monetary policy statement, suggesting a slightly less data-dependent approach to policy normalisation, which should lead the market to price in a July hike with more conviction, suggests Sam Bonney, Research Analyst at Nomura.

Key Quotes

“The BOC kept rates unchanged today, in line with consensus and market expectations. However, as we expected, the BOC has tipped the market towards pricing a hike to come in July.”

“Specifically, the BOC removed “cautious” from the statement:

• April: (the) “Governing Council will remain cautious with respect to future policy adjustments”
• May: (the) “Governing Council will take a gradual approach to policy adjustments”

“The BOC continues to note that it will be “guided by incoming data”, but the statement clearly signals a slightly less data-dependent approach than previously communicated.”

“Furthermore, clarification of the reasoning behind the change will likely come from BOC officials ahead of the July meeting, which could provide further hawkish surprises. Tactically, we see opportunities for CAD longs against other commodity currencies into the July BOC meeting.”