A C$1 billion taper from the Bank of Canada at their upcoming meeting has been fully priced in for a while, which means more attention will fall on interest rates.
The front end of the curve has seen some punchy moves recently, and the OIS curve implied three hikes for the BoC by 2H22. The current development in the economy certainly warrants a hawkish central bank.
However, there is a chance that the bank delivers just what is needed, by moving forward by reducing tapering as expected and keeping the rate path unchanged. If that happens, the rapid pricing of front-end yields and the CAD could see a typical ‘sell-the-fact’ market reaction.
But with recent economic data solid, energy prices soaring and risk sentiment strong there is a chance the bank brings home the bacon. So keeping an open mind and doing scenario planning will be important as always.
As always, we have more on this and how we look to potentially take advantage of it in our week ahead video.