USD/CAD: Loonie unlikely to gain an advantage as BoC's rate hikes expectations seems exaggerated – Commerzbank

USD/CAD is trading around the 1.30 level. In the view of economists at Commerzbank, market pricing for Bank of Canada’s (BoC) rate hikes is too aggressive, therefore, the loonie is unlikely to benefit from this front.

Markets remain convinced that the BoC will stick to its accelerated rate hikes in June and July

“As regards the BoC’s imminent rate decision the market clearly remains convinced that the BoC will stick to its accelerated rate hikes in June and July at least. According to OIS-based rate expectations, 100bp are almost completely priced in for the 3-month horizon.”

“It seems exaggerated to us that the BoC might even hike its key rate by 75bp in June, which some clearly seem to be expecting. That means that the loonie will be unlikely to gain an advantage on that front as a downside correction of the rate hike expectations would put pressure on CAD if regarded in isolation.”