BoC On the Radar

Subscriber-only

The April Bank of Canada meeting would be a good opportunity to tee up a June rate cut, contingent on the CPI releases in between.

by Brent Donnelly

March 27, 2024

Gin and tonic glows under black light

Current Views

Long EURGBP @ 0.8552

Stop loss 0.8479

Take profit 0.8694

Buy USDJPY @ 150.56

(Limit order)

Stop loss 148.69

Take profit 154.44

USDCAD

Carolyn Rogers gave an interesting speech yesterday, describing the decline in Canadian productivity as an emergency. The full thing is linked below, and it’s not super long…

https://www.bankofcanada.ca/2024/03/time-to-break-the-glass-fixing-canadas-productivity-problem/

It feels to me like it’s almost time for the Bank of Canada to get dovish. Inflation is declining rapidly in Canada and barring some sort of resurgence you have that decline on top of weak GDP and a stretched economy that shows quite a lot of slack (see BoC Business Outlook Survey for example).

Given there’s little priced in for April and rate cuts are not going to solve the productivity emergency, it would make sense for the BoC to tee up a June rate cut at the April meeting, contingent on the CPI releases in between. I think this might be moderately interesting for USDCAD (higher) as the SNB’s first move was pretty spicy in CHF despite it being a popular trade.

The complicated but logical trade is to pay April (20% chance of a cut priced), receive June, and be long USDCAD through the meeting via options because vol is incredibly low and while stuff isn’t moving much, things do still move sometimes!

You can see we have been consolidating in a narrowing range all year. Coiling.

I don’t think it’s quite the right time to pull the trigger on USDCAD (the BoC meeting is April 10) but this is something that I think should be on the radar over the next week or so. The Quarterly Business Outlook comes out April 1 and the Bank always treats that as highly relevant.

If you don’t like the USD higher, things like EURCAD and AUDCAD should also work if the thesis is correct.

Final Thoughts

I am keeping it super short today because I was stuck on a train all morning.

Have a glowing day.

https://www.promegaconnections.com/when-you-got-the-glow-the-truth-about-your-gin-and-tonic/

Tonic water gets its bitter taste from quinine, which is fluorescent. Fluorescence is a form of luminescence (the other form is phosphorescence), which occurs when a chemical compound absorbs a particle of light, a.k.a. photon, which excites an electron. What you see is the photon being released as the electron returns to its ground state (in other words, when the electron calms down again). Chemicals that fluoresce are known as fluorophores. Quinine is a model fluorophore used widely as a standard in scientific studies.