BoC: How CAD will be impacted by the decision?

Francesco Pesole, FX strategist at ING, suspects that an unchanged message from the July meeting may disappoint markets' dovish expectations and likely trigger an uptick in Canadian rates and the loonie.

Key Quotes

“A dovish shift - which we see as more likely - should prompt investors to bring forward their expectations for a cut from December to October and possibly pencil in more cuts for 2020 (currently, 25bp of easing in the OIS curve by 4Q20). This may result in some downward pressure on rates and USD/CAD may break the 1.3400 level.”

“In the longer-term, we maintain a positive view on the Canadian dollar and notwithstanding a dovish turn by the BoC, we still do not exclude USD/CAD to explore the area below 1.30 in early-2020.”