FLCA - Bank of Canada Preview: Another One Down

2024-07-18 08:25:00 ET

Summary

• The Bank of Canada looks set to opt for back-to-back rate cuts in July as unemployment continues to climb and inflation converges on its target.
• We expect 50bp of further cuts this year.
• Offsetting forces could keep USD/CAD volatility capped for longer, even if we continue to favour a modest depreciation in the pair later this year.

By James Knightley & Francesco Pesole

A second 25bp cut is on its way

The Bank of Canada kicked off its easing cycle at the June 5 meeting and our sense in the wake of that decision was it would follow up with a further 75bp of rate cuts in the second half of the year, but it may not immediately cut again in July. That has changed following another sizeable increase in the unemployment rate to 6.4% from 6.2% and the June inflation report undershooting expectations. With financial markets now pricing 22bp of a 25bp cut on 24 July, it would be a surprise for the BoC not to cut....

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