MUFG projects limited gains for the Canadian Dollar as weak labour data and trade uncertainties temper expectations for aggressive Bank of Canada interest rate hikes.
The Canadian Dollar faces limited upside potential against the USD as MUFG analysts anticipate the Bank of Canada will likely push back against aggressive market expectations for future rate hikes. Despite an 80% implied probability of an immediate hike, weak domestic labour market performance and ongoing trade-related uncertainties are expected to prevent further expansion in front-end yields.
The market has priced in 100 basis points of tightening through next September.
MUFG believes that weak labour data and trade risks will prevent front-end yields from rising, despite the high probability of an immediate rate hike.
MUFG analyst Derek Halpenny warns that the Canadian Dollar faces limited upside potential despite an 80% market-implied probability of a rate hike. Weak domestic labour data and persistent US trade risks are expected to constrain front-end yields, challenging the 100 basis points of tightening currently priced into the market through next September.
MUFG cites weak domestic labour market performance and ongoing trade risks with the United States as primary factors limiting the potential for front-end yield growth.