Forex Flash: Will the CAD capitulate given BoC dovishness? – UBS

The Bank of Canada decision on Wednesday could prove a make-or-break event for CAD. Amongst the G10, only the JPY and GBP have performed worse so far this year, however many investors are voicing concern that capitulation may be upon the currency soon if the BoC chooses to be any more dovish than they were in January.

At that meeting, the central bank directly pointed to the adjustment in 'household imbalances' as the reason for 'less imminent' withdrawal. According to Research Analyst Gareth Berry at UBS, “The key question is whether two months on, the 'evolution of imbalances' is now proceeding in a more pernicious manner, enough to warrant an outright retraction of 'stimulus withdrawal'.” We have seen this happen to the RBA and Norges Bank - and in the case of the latter to devastating effect for the NOK - and easing is already being priced into the CORRA curve.