JUNE 1 HIKE IN QUESTION
By Claire Sibonney Reuters The negative news has led many to question whether Bank of Canada will start raising rates from their current record lows on June 1.
Yields on overnight index swaps, which trade based on expectations for the Bank of Canada’s key policy rate, have fallen in recent weeks and on Wednesday indicated just a 51 percent chance of a June 1 rate increase.
On April 20, when the bank removed its conditional pledge to keep interest rates on hold until the end of June, the market priced in more than a 90 percent likelihood.
Currencies tend to strengthen as interest rates rise as higher rates often attract capital flows.
“Even with the ongoing uncertainty, the Canadian situation warrants a small move toward more normal rates so I wouldn’t unwind the forecast just yet,” said Craig Wright, chief economist at Royal Bank of Canada., whose bank was the last primary dealer to join the call for a June 1 move.
“We’re really just looking at a 25 basis point adjustment … tapping of the brakes rather than slamming them on.”