BoC: Cautious hold and oil-linked risks – TD Securities

TD Securities stategists expect the Bank of Canada to keep its overnight rate at 2.25% with a cautious tone, as growth and inflation run below projections. They highlights elevated uncertainty and new inflation risks from the Iran conflict and higher Oil prices. They see Oil volatility as the main near-term driver for Canadian yields.

Policy on hold with risk focus

"We look for the BoC to hold at 2.25% as the statement takes a cautious tone with uncertainty elevated and growth/inflation tracking below BoC projections."

"However, any dovish elements should be balanced by acknowledgment of new risks to inflation."

"Oil volatility should continue to be the main driver for yields in the near-term, with the BoC expected to wait a little longer as uncertainty remains elevated."

"Heading into the meeting, we are biased selling CAN-US 10s and 3s5s swap spread flatteners."

"Markets will remain focused on geopolitics. We expect CAD to outperform its peers (ex-USD), supported by its somewhat positive link to higher oil prices, lower beta to risk-off sentiment, and cleaner positioning."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)