Bank of Canada could hike rates as soon as July - Wells Fargo

According to analysts from Wells Fargo, the Bank of Canada could raise rates in July. If that is the case, the Canadian dollar is likely to strengthen over time against the US dollar. 

Key Quotes: 

“After a run of better-than-expected economic indicators and a solid print for GDP growth in Q1, Canada’s first step toward monetary policy normalization in the form of an increase in the Bank of Canada’s (BoC) overnight rate could come as soon as July.”

“That is not to say that key challenges like an overheated housing market and high consumer debt levels have disappeared. A slightly higher overnight rate does not necessarily make either of those problems worse; in fact, higher short-term interest rates could discourage increased consumer leveraging and the funding available to finance home purchases, even if only marginally.”

“In our view, markets have already partly reacted to evolving Canadian policymakers’ communication. Since the shift in the BoC’s tone earlier this month and with the Canadian dollar short positioning extended, the Canadian dollar has strengthened by 3 percent versus the greenback, while Canadian two-year government bond yields rose 30 bps, narrowing the interest rate spread between the United States and Canada. A July rate hike by the BoC would reinforce our outlook for Canadian dollar strength over time as the relative monetary policy stances between the United States and Canada begin to converge.”