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The Bank of Canada (BoC) is set to announce its Interest Rate Decision next week. There is modest room for a hawkish (although short-lived) market reaction, in the view of economists at ING.

Market impact shouldn’t be big this time

Markets are pricing in 100 bps of cuts in 2024 in Canada, so it is likely that expectations are leaning towards a softening of the hawkish tone by the BoC at this meeting. 

Ultimately, data – and the spill-over from Fed pricing – remain significantly more important for the CAD swap curve. 

CAD may rise on a hawkish hold, but don’t expect the FX impact to be very long-lasting: we don’t see the Loonie as a particularly attractive currency into the first months of next year given its very high correlation to US data, which we expect to deteriorate in 1H24. Other commodity currencies like AUD and NOK are more appealing.

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