Greater risk of a BoC rate cut than RBA – BBH

FXStreet (Barcelona) - The Brown Brothers Harriman Team, explain that risks are tilted more towards a BoC rate cut than by the RBA, but chances of a strong rally are less as failure to cut rates will only raise conviction for a later move.

Key Quotes

“The central banks in Australia and Canada meet. The derivatives markets show a high degree of confidence that both central banks will cut rates again. The issue here is timing, and it affects short-term traders more than medium- and long-term investors.”

“In the past week, the pendulum of expectations for this week's meetings has shifted away from cuts. A weak capex survey from Australia at the end of last week encouraged the doves to stick with their views. It is a close call, and our impression is that officials had framed the issue as February or March last month. Back-to-back cuts may be more aggressive than is warranted by the data.”

“With some verbal guidance by Bank of Canada officials, investors had been convinced that another rate cut would be delivered at the March meeting. However, last week, Governor Poloz was understood to mean that a cut is not imminent.”

“In our reading, Poloz simply restated the official policy – that the January rate cut was an insurance policy meant to buy time for the economy to adjust to the fall in oil prices.”

“We suspect that there is a greater risk of a Bank of Canada rate cut than an RBA rate cut in the week ahead. That said, the failure to cut rates might not spur a strong rally as the lack of action now will simply raise the conviction for a later move.“