🏦🇨🇦Cable FX Macro Weekly Note: BoC October Rate Decision

**As seen in Risk In The Week report 10/20/23, subscribe at cablefxm.co.uk/reports

Last month, the Bank of Canada held rates unchanged at 5%, this was in line with economists’ estimates. The central bank said it remained concerned about sticky inflation and that it was ready to hike rates again. On the labour market, they flagged it as easing gradually, however, the statement noted wage growth kept rising at a high pace. On growth, the surprise contraction was attributed to softer consumption and the wildfires. Looking ahead, the BoC stated that it sees higher CPI in the near term while the core is expected to hold little downward momentum. The most recent BoC forecast pencils consumer prices at 3.70% this year and at 2.50% in 2024. We just received fresh price data from StatCan, the October headline CPI slowed to 3.8% Y/y vs the estimate of 4.0%, and the BoC’s average of core inflation dipped to 3.67% from 4.29%. The data led to money markets trimming bets on an October hike to 26% from 43% prior to the release. A week before, we had seen swaps increasing odds of a hike on a strong September labour market print. Analysts at TD Securities indicated that firms expressed a more downbeat tone in the most recent BOS, while inflation expectations extended lower which is likely to take some pressure off the BoC. TD expects the central bank to leave policy unchanged at 5.0% and let previous tightening pass through the economy. Economists at Commerzbank said that September CPI data opened the door for the BoC to take no action in October, however, speculation on sticky core prices could leave expectations of additional tightening on the table. Commerzbank mentioned this is likely to support the CAD but warned that a sustainable recovery is not probable. The desk at BMO is expecting a sharp deflationary print for the October CPI print, they pointed at gasoline prices down 7% this month and penciled the headline falling back to the BoC’s price target band. BMO sees no need for the BoC to move rates this month.