Bank of America Global Research discusses its expectations for this week's BoC policy decision.
"We expect the Bank of Canada (BoC) to slow down the pace and hike the overnight rate by 25bp on 7 December to 4.00%. The domestic part of the economy has clearly decelerated with notable contractions in household consumption and residential investment (Chart of the day: GDP and domestic demand ). The labor market is not getting tighter. Inflation is not increasing anymore, and inflation expectations remain anchored. With the policy rate already above neutral (3.75% vs. 3.00%), we expect the BoC to lower the pace once more to reach a "normal" pace of hikes. The risk is that the BoC keeps the pace at 50bp, at least for one more meeting, given that inflation is not trending down yet," BofA notes.
"FX price action may be muted even if BoC surprises to the downside again. We retain our forecast path of 1.36 for year-end 2022, and expect a more meaningful USD/CAD sell-off to take place in Q1 2023," BofA adds.