A month ago, the market was flirting with the idea of the Bank of Canada only doing 25 basis points rather than 50 bps. Now, the market is shifting away from 50 bps to 75 bps.
CIBC piled on after today's hot inflation report.
The Bank of Canada has clearly not slayed the inflation dragon yet and is therefore set for another large rate hike next week. The pace of growth in seasonally adjusted inflation excluding food and energy picked up by more than expected this month and is too high for comfort. As such, we now believe the Bank will need to go with a 75 bps hike next week rather than the 50 bps we previously anticipated. The Bank might then be left with a last 25 bps in December if growth numbers support it.
That fits with the shift in market pricing, which now shows a 68% chance of 75 bps and 32% chance of 50 bps.
The Canadian bond market is also flashing warnings signals with GCAN 10s up 20 bps to 3.55% today. That's still 60 bps below equivalent Treasuries though, maintaining the spread in the US dollar's favour.
The BOC decision is next Wednesday, October 26 with the ECB the next day and the BOJ the day afterwards. The following week includes the RBA, Fed and BOE.
I spoke with Reuters earlier today about the Canadian dollar.
"Hopes for a peak in global inflation in the autumn have been dashed. Now we have to wait to see how central bankers respond to that," they quoted me saying. "The US dollar is really on the warpath"
