This week, BoC’s Wilkins maintained the Bank’s profile for further hikes, but also stated that in an indebted country, as per Canada’s household debt, the economy is more sensitive and so policy moves are more effective, points out Tim Riddell, Research Analyst at Westpac.

Key Quotes

“This highlights that the Bank will be monitoring the effects of the July hike.”

“Although Q2 GDP will give a sound backing for their current rates stance, the Bank will be looking to see how more timely data and surveys are responding especially since they have stressed the importance and impact of tariffs on the Canadian economy.”

“At present the market is pricing 90% for an October hike (20% in Sep), given the solid domestic economy and their profile of mildly rising inflation in H2 18.”

“Recent official and media commentaries around NAFTA appear to be more positive about potential agreements with Mexico and the subsequent addition of Canada in talks, despite US imposing tariffs on steel piping this week. Oil is also rebounding and so bias is for USD/CAD to test July’s 1.2960 low, though US tariff risks clearly remain.”