CAD: BoC On Hold With A Neutral Stance; CAD 3-5% Overvalued – BofAML

Bank of America Merrill Lynch Research expects the Bank of Canada (BoC) to remain on hold in its 24 May meeting.

“We see the BoC on hold in May with a neutral statement as growth and inflation diverge. We expect BoC to hike in 1Q18,” BofAML adds. 

On the CAD front, BofAML argues that the BoC’s likelihood of staying on hold this year should continue to be supportive of BofAML’s overall negative view on CAD, with modest smaller upside for USD-CAD.

“This stance is against recent market moves, where CAD has rallied a bit on the back of oil prices in past days. However, we continue to look for CAD to sell off modestly to 1.39 by the end of the year, primarily because we still look for interest rate differentials to imply a higher USD….

At present, we would see CAD as around 3-5% overvalued combining the information from both rates and commodities markets,” BofAML argues.

Source: Bank of America Merrill Lynch Rates and Currencies Research

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