BoC poised for June easing according to Monex

• Despite
  unchanged rates at 5% today and a conservative approach due to past forecasting
  errors, the Bank of Canada (BoC) signals a dovish stance, hinting at a June cut
  with eased conditions for rate reductions.

• The BoC’s Monetary Policy Report shows a more
  dovish outlook with inflation expected to decrease to 2.8% in Q1 and to 2.2% by
  Q4 2024, aiming for a 2% target by 2025

• Updated
  potential output growth to 2.5% for 2024 suggests the economy can grow without
  fueling inflation, supporting a softer landing.

• Despite
  positive revisions, there’s caution about the demand outlook and core
  inflation’s slow pace, suggesting a quicker return to the inflation target.

• Anticipation
  of BoC cutting rates at every meeting from June, potentially reducing the
  policy rate by 125bps to 3.75%, unless external factors, like US inflation or
  oil price rises, alter the course.

• March’s US
  inflation report affected market expectations, reducing anticipated BoC rate
  cuts from three to two and a half for the year.

• Expected BoC rate cuts in contrast to a more
  inflationary US might widen USDCAD swap rates, supporting a climb to 1.38-1.40
  range in Q2, though not exceeding 1.40 due to Canada’s lower recession risk and
  the Fed’s policy path.

This article was written by Arno V Venter at www.forexlive.com.