Bank of Canada have been surprised by Canadian dollar strength
Currencies are highly sensitive to the front-end of the bond curve and fund managers at PIMCO think the latest move in two-year notes has run its course.
Yields have climbed to 1.315% from 0.700% eight weeks ago.
PIMCO thinks the Bank of Canada won't want to commit to that much and will say so soon.
"The bank wants to be cautious in its communication and the tightening of policy especially given the enormous strength of the Canadian dollar," said Ed Devlin, head of the Canadian portfolio at Pimco in an interview with Bloomberg. Devlin oversees about C$17 billion. "I don't think they want financial conditions to tighten much more than they already have."
PIMCO believes the Bank of Canada will probably raise rates again this year and likely once or twice next year but will be cautious.
"Growth has mainly been on the consumer side and not really on exports or investment, and the bank really wants to see that rotation as do we, but we haven't seen it yet," Devlin said. "If we don't see it, I think the hypothesis that the rotation is happening has to be called into question."
USD/CAD is up 62 pips today as it begins to carve out a range around 1.25.
