Market pricing and economists favour a 25bp hike from the BOC tomorrow

The Bank of Canada are expected to hike interest rates by 25bp tomorrow according to market pricing and economists. The hike would see their benchmark rate rise to 4.5% - its highest level since October 2007 – and on par with the Fed yet above the RBNZ’s 4.25% rate. A 25bp hike would be the slowest pace since their first hike of this cycle in March 2022, after which they moved up 50bp increments, a 100bp hike and a 75bp hike along the way. The central bank will also provide minutes from the meeting on February the 8^th, which is the first time in their history.

Money markets suggest an 80% chance of a 25bp hike, whilst 25 of 26 economists polled by Reuters (96%) also anticipate the move. With a 25bp hike all but a given, it could take a surprise hold to prompt volatility for traders. But then looking through the latest business and consumer sentiment surveys suggest we could be fast approaching the BOC’s terminal rate. So traders should also be on guard for a potential dovish hike, where the BOC may hint that they’re nearing the end of their tightening cycle. And that could spell further weakness for the Canadian dollar.

The BOC pay close attention to their quarterly business and consumer outlook surveys, and the general trend across both is a concern of high inflation weighing on their outlook for the economy. So on that front the rate hikes are doing their job to cool the economy by lowering demand.

However, with inflation remaining stubbornly high and both Trimmed Mean and Median CPI hovering near their multi-decade highs and nearly twice the upper bound of their 1-3% target range, it leaves the potential for at least 1 or 2 more 25b hikes.

Summary of the quarterly BOS (business outlook survey)

Business confidence continues to weaken
29% of firms expect their sales to decline
Firms intentions to increase investment and hire continued to trend lower
Rising interest rates are weighing down firms’ outlooks
Expectations of labour costs remain historically high yet fell for a fifth consecutive month
Business expect growth of their input and output prices to slow
Firms think inflation will stay high in the short-term (0-2 years)

Summary of consumer expectations survey

Consumers have reduced purchases of a broad range of goods and services due to high inflation and interest rates
Real wages continued to decline and access to credit has worsened
Most consumers expect a mild to moderate recession in Canada within the next 12 months
Two thirds of those expecting a recession do not think it will be severe
Expectations for inflation one year from now remain elevated at a high level, while actual inflation steadied

GBP/CAD 4-hour chart:

With the BOE making increasingly hawkish comment and the BOC likely nearing the end of their tightening cycle, GBP has risen over the past two weeks. Yet prices have also pulled back the past two days and we’re waiting to see if the cross can hold above support around 1.6445, which comprises of previous highs, the monthly pivot point and the 20-day EMA.

The 4-hour chart shows a lower wicks and a Doji respected the 20-bar EMA, so perhaps prices are trying to form a low. The bias remains bullish above 1.6400, so bulls could either seek to enter around current levels (if confident a low is near), or wait to see if prices pull back to the 1.6450 resistance level – then seek evidence of a swing low.

Take not that the 200-week EMA resides around 1.6700 and makes a likely resistance level. But for now the bias is for an eventual break above it, based on the strength of the bullish trend on the daily chart overall.

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.