Central Bank Watch: BOC, RBA, And RBNZ Interest Rate Expectations Update

CENTRAL BANKS HOLDING THE LINE

In this edition of Central Bank Watch, we’re examining the rates markets around the Bank of Canada, Reserve Bank of Australia, and Reserve Bank of New Zealand. Now halfway through April, we’ve had the RBA and RBNZ meet, and we still have the BOC ahead next week. A trend has started to emerge, however. Ongoing stability in global bond yields has helped provoked a drop in early rate hike expectations among the three commodity currency central banks.

BANK OF CANADA MEETS NEXT WEEK

The BOC meets next week for its April policy meeting. Like for the RBA and RBNZ thus far this month, it seems prudent to expect further pushback against the recent rise in global bond yields, with ensuing commentary expected to heap praise on stability in interest rates over the intermeeting period. Even as BOC Governor Tiff Macklem has noted concern about rapidly rising house prices, rates markets aren’t seeing a future where the BOC sees its objectives changed anytime soon.

BANK OF CANADA INTEREST RATE EXPECTATIONS (APRIL 14, 2021) (TABLE 1)

Central Bank Watch: BOC, RBA, & RBNZ Interest Rate Expectations Update

The ebb and flow of BOC interest rate expectations is not atypical. Even though just last week there was a 2% chance of a 25-bps rate hike through the end of the year, Canada overnight index swaps are now pricing in an 18% chance. But in late-February, markets were pricing in a 16% chance of a rate hike by the end of the year. All-in-all, the BOC remains on the same path its been, and will remain on that path for the foreseeable future.

IG CLIENT SENTIMENT INDEX: USD/CAD RATE FORECAST (APRIL 14, 2021) (CHART 1)

Central Bank Watch: BOC, RBA, & RBNZ Interest Rate Expectations Update

USD/CAD: Retail trader data shows 68.83% of traders are net-long with the ratio of traders long to short at 2.21 to 1. The number of traders net-long is 15.11% higher than yesterday and 30.76% higher from last week, while the number of traders net-short is 20.23% lower than yesterday and 19.30% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USD/CAD prices may continue to fall.

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