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23 Sep 2014
BoC divergences to that of the Fed - BAML
FXStreet (Guatemala) - Ian Gordon, FX Strategist at BAML explained a key rationale behind our bullish view on USD/CAD is the presumption of relative policy divergence between the Federal Reserve and the Bank of Canada.
Key Quotes:
"We've had to wait a little while, but the Fed is now communicating increasing confidence the economy is making faster progress towards its goals than initially anticipated, which alongside of Chair Janet Yellen's more balanced tone has been one factor driving the recent dollar strength. The notable upward shift in the "dot plots" over the course of this year highlights their growing confidence, and implies an earlier timing of the first hike, a faster pace once it gets started, and a quicker convergence to long-run averages."
"For its part, the BoC has retained its neutral stance even in the face of firmer inflation and export growth, preferring to see further signs of a sustained rotation towards export-led growth that generates jobs and business investment, leaving us comfortable that the BoC will be on hold until 1Q16. However, USD/CAD has lagged the broader USD move, rising only less than half of the DXY's 6% recent rise. With the Fed moving towards normalization, we review how CAD has performed in prior Fed hiking cycles."
Key Quotes:
"We've had to wait a little while, but the Fed is now communicating increasing confidence the economy is making faster progress towards its goals than initially anticipated, which alongside of Chair Janet Yellen's more balanced tone has been one factor driving the recent dollar strength. The notable upward shift in the "dot plots" over the course of this year highlights their growing confidence, and implies an earlier timing of the first hike, a faster pace once it gets started, and a quicker convergence to long-run averages."
"For its part, the BoC has retained its neutral stance even in the face of firmer inflation and export growth, preferring to see further signs of a sustained rotation towards export-led growth that generates jobs and business investment, leaving us comfortable that the BoC will be on hold until 1Q16. However, USD/CAD has lagged the broader USD move, rising only less than half of the DXY's 6% recent rise. With the Fed moving towards normalization, we review how CAD has performed in prior Fed hiking cycles."