Earlier previews:
- Bank of Canada cash rate forecast to 2% by the end of 2022
- CIBC still leans against January Bank of Canada rate hike after CPI report
- The forecasts for an imminent Bank of Canada rate hike are getting more numerous
- RBC says the Bank of Canada needs to hike rates rapidly and multiple times
Preview remarks (in brief) via ING:
- We look for the Bank of Canada to raise interest rates 25bp on 26 Jan. Activity is strong, the economy is seeing record employment and inflation is at 30-year highs. Covid containment measures are also set to be eased at the end of the month and this should signal the green light to hike rates. Expect a positive impact on CAD, although extenal risks are mounting
The report highlights:
- Strong economic recovery boosts the case for action
- Inflation and easing restrictions gives BOC the green light
On CAD implications:
- Rate hike to support CAD, but watch for external risks
- Markets are currently pricing in around a 70% implied probability that the BoC will hike rates on Wednesday. This means that there is some decent room for Canada's dollar to benefit from a rate hike, as this would also legitimise the current aggressive tightening expectations by the markets, which are pricing in around 125bp worth of hikes in 2022
