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Canadian Dollar Recovery Doubts Delay BoC Hikes – Commerzbank
Commerzbank analysts argue persistent uncertainty around Canada's economic recovery will keep the Bank of Canada on hold, widening the rate gap with the Fed and pressuring USD/CAD higher.
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Commerzbank analysts are pushing back on expectations for a near-term rate hike from the Bank of Canada. The bank cites persistent uncertainty around the pace of Canada's economic recovery. This assessment directly affects CAD positioning, which has been heavily driven by rate differentials. A delay in BoC tightening shifts the relative carry trade against the loonie.
Canada's export-dependent economy faces headwinds from global demand softening and commodity price volatility. Commerzbank's view suggests that until domestic data – particularly GDP growth, employment, and retail sales – show sustained momentum, the BoC will remain on hold. The BoC has kept its policy rate unchanged since the last hike in 2023. Commerzbank's view implies that the next move could be delayed well into 2025. This contrasts with the Federal Reserve, which has maintained a more hawkish tone on its own rate path. The divergence creates a persistent drag on USD/CAD that favours dollar longs.
The simple read is that a weaker growth outlook means no rate hikes, which is negative for the currency. The better market read goes deeper. Positioning data from the weekly COT reports show speculative shorts on CAD have already been building. If the recovery doubts persist, the bearish bias could extend further. A surprise upside in next month's Canadian CPI or labour force survey would force a repositioning. That is the key asymmetry.