At the last BoC interest rate meeting it became clear that the BoC may have now had its very last rate hike for this year. Headline inflation fell from June’s peak of 6.2% last year and December’s inflation print was at 5.4%. Short Term Interest Rate markets are no longer pricing two rate cuts into the end of the year (they were a week ago) and see interest rates unchanged until the end of the year.

What did Governor Macklem say about the path of future rates?

Macklem was asked specifically in the BoC press conference in January what he would need to see raise rates again. Macklem’s reply was that he, ‘will be looking for accumulation of evidence’. This would mean high inflation prints and/or a strong labour market would potentially send the CAD higher, as markets would interpret this as meaning the BoC may have to move back towards hiking rates.

On Friday we have CAD employment data. The employment change is expected to see 15K jobs added down from the prior reading of 104K. Unemployment is expected to rise to 5.1% and average hourly wages to fall to 5.2%. See expectations here from the Financial Source Economic Data Tracker.

So, a tradable decision would be one where the CAD jobs data comes in much higher than expected. This is what we would need to see for some short-term strength in CAD:

  • Headline jobs: Above 80K
  • Unemployment: 4.9% or lower
  • Average Hourly Wages: 4.6% or higher

If we saw the above print it would be reasonable to expect a short-term spike in CAD. The pair to trade it with would be whatever currency/currencies are weak on the day. However, be warned that on February 8 Macklem explicitly gave the reason for a BoC pause. He wanted to pause before the ‘economy and inflation’ slows too much. Crucially he also said that more hikes will be needed if wage growth does not moderate alongside inflation expectations.

Future dates to watch

CAD inflation data is due on Feb 21st and current expectations are for the headline to drop to 5.6% from 6.3%.

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