• Rochelle Vaz, Associate, Global Capital Markets at Validus Risk Management


• 16.02.2022 03:00 pm
#RiskManagement

Commenting on the market reaction to headline Canadian CPI coming in above expectations, Rochelle Vaz, Associate - Global Capital Markets, at Validus Risk Management, said: “Headline inflation for January came in above consensus at 5.1% y/y, with sharp increases seen in non-discretionary categories like food, shelter, and transportation costs. Local pump prices hit a record high in February and with reports of shortages due to the recent supply chain disruptions at the US-Canada border, inflationary pressures are expected to persist in the medium term. With wage growth still subdued, consumer spending on discretionary goods and services will likely be impacted as households adjust their budgets to cover costs of necessities.

“Today’s print is unlikely to change the trajectory of monetary policy by the BoC, who at the January meeting signaled that a rate hike cycle is on the horizon. Market expectation of a 25-bps rate hike in March is now firmly established and calls will grow for a 50bps rate hike to rein in inflation. However, uncertainty over the scale of tightening remains with bond markets currently pricing in an aggressive seven rate hikes for 2022 but we believe that BoC Governor Tiff Macklem will pause midway through the hiking cycle to assess the impact of initial rate increases and recalibrate if needed.

“Front-end yields jumped 6bps in reaction to the data and USDCAD spot has been steady around 1.2680. Elevated oil prices and a hawkish BoC will limit CAD weakness.”