The Canadian dollar has been one of the strongest performers within G10 over the past month. It is up over 4% against the USD since the start of February, with only JPY having performed better (up over 6% vs USD).
The modest bounce in oil prices combined with a pare back in BoC rate cut expectations has supported the CAD recovery. The market had priced as much as 40bps of rate cuts for 2016 in the run up to the January BoC meeting. This has pared back dramatically since then, with only a 40% probability of a 25bp cut expected this year.
A number of decent domestic data releases along with the modest recovery in oil have supported the re-pricing in rate cut expectations. January CPI came in firmer than expected a few weeks ago and yesterday, Q4 GDP came in much better than expected at 0.8% q/q annualised, exceeding the market and the BoC’s expectations for a flat print. However, much of this was due to a 2.3% q/q drop in imports. The December print was also firm, rising by 0.2% m/m; this was supported by a decent pickup in manufacturing - key to Canada’s export-led recovery, while the sustained growth in services industries indicated that the nonresource side of the economy continues to help offset some of the energy-related weakness. The GDP report should be constructive to the BoC’s growth scenario and reinforces our call for unchanged policy rates at the 9 March BoC meeting.
PS: Copy signals, Trade and Earn on Forex4you - https://www.share4you.com/en/?affid=0fd9105
