BoC policy divergence: No rush to follow FED - Scotiabank

In view of the analysts at Scotiabank, the Fed is poised to tighten monetary policy this week and expect two more rate increases over the balance of the year while they do not expect the Bank of Canada to raise interest rates until later in 2018. 

Key Quotes

“With the Fed in motion again, short-term Canadian yields are being pulled a little higher in sympathy. But we expect spreads to widen and the BoC to protest any significant rise in domestic yields that it feels is inappropriate for economic conditions. Wider US-Canada spreads will provide steady support for the USD in the coming months and help lift USDCAD to 1.40 later this year.”

“We remain of the view that that corporate USDCAD buyers should consider hedging USD payables while USDCAD sellers should wait to cover receivables. Speculative investors should hold USD long/short CAD positions. Canadian institutional investors should stay neutral or overweight USD relative to benchmarks.”