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Mar 05 - 06:55 PM

Barclays: BoC to Hold Rates Steady in March Meeting; CAD to Outperform Vs Commodity FX

By eFXdata  —  Mar 05 - 04:30 PM

Synopsis:

Barclays forecasts that the Bank of Canada (BoC) will maintain its current interest rate stance in its upcoming meeting on Wednesday, citing recent economic indicators that signal weaker momentum than anticipated. Although Q4 GDP showed a rebound, driven significantly by net exports, domestic demand contraction and a cooling in core inflation measures suggest a cautious approach from the BoC.

Key Points:

  • Inflation and GDP Trends: Recent data indicates a retreat in headline inflation within the BoC's target range and a deceleration in core inflation metrics. While Q4 GDP saw growth, it largely benefited from an exceptional rise in net exports, contrasting with declines in domestic spending.

  • BoC's Monetary Policy Stance: Barclays anticipates that the BoC will seek further confirmation of moderation in inflationary pressures and wage growth before considering any policy adjustments. The likelihood of a hawkish surprise at this meeting is deemed low.

  • CAD Performance Outlook: Despite limited prospects for an immediate USDCAD pullback, Barclays projects potential for the Canadian dollar to outperform its commodity currency counterparts. This outlook is supported by Canada's economic ties to a relatively stable US economy.

Conclusion:

Barclays expects the Bank of Canada to pause on interest rate changes in its March meeting, reflecting a wait-and-see approach amid mixed economic signals. While near-term CAD dynamics versus the USD may remain unchanged, the Canadian currency is poised for relative strength against other commodities currencies, anchored by close economic connections with the United States.

Source:
Barclays Research/Market Commentary

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