{"id":588849,"date":"2026-09-03T12:14:08","date_gmt":"2026-09-03T12:14:08","guid":{"rendered":"https:\/\/www.newsbeep.com\/nz\/588849\/"},"modified":"2026-09-03T12:14:08","modified_gmt":"2026-09-03T12:14:08","slug":"canadian-dollar-boc-inflation-focus-and-valuation-divergence-mufg","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/nz\/588849\/","title":{"rendered":"Canadian Dollar: BoC inflation focus and valuation divergence \u2013 MUFG"},"content":{"rendered":"<p>Derek Halpenny at MUFG notes the Canadian Dollar\u2019s (CAD) immediate advance after the Bank of Canada left rates unchanged at 2.25% but signalled greater concern over inflation. Communications hinted at a possible earlier hike, yet MUFG doubts a sustained CAD rebound, citing short\u2011term valuation models that suggest <a href=\"https:\/\/www.fxstreet.com\/currencies\/usdcad\" data-fxs-autoanchor=\"\" rel=\"nofollow noopener\" target=\"_blank\">USD\/CAD<\/a> should trade higher, with Oil and Middle East risks also shaping CAD performance.<\/p>\n<p>CAD reaction to BoC and Oil<\/p>\n<p>&#8220;The Canadian dollar advanced immediately yesterday in response to the decision of the Bank of Canada to leave its monetary stance unchanged at 2.25% with the rhetoric accompanying the decision indicating a greater concern over the inflation outlook than market participants were expecting.&#8221;<\/p>\n<p>&#8220;However, the communications were certainly indicative of a possible rate hike coming much sooner. The reference to the policy stance being appropriate to achieving the inflation goal was omitted and the emphasis certainly shifted more to the upside inflation risks. Even with underlying inflation well contained there was a \u201cheightened risk\u201d that energy prices would spill over into broader measures of inflation.&#8221;<\/p>\n<p>&#8220;In the press conference the impact of tariffs on the economy was certainly the focus from a growth risk perspective but Governor Macklem added that the tariffs were applied to a \u2018relatively narrow base\u2019 and because of that the BoC did not expect a \u2018big ongoing impact on overall economic activity\u2019.\u201d<\/p>\n<p>&#8220;Our short-term valuation model for USD\/CAD points to the USD\/CAD level currently undershooting which is similar to the current divergence on the co-movement between USD\/CAD and the 2-year swap spread. Both indicate USD\/CAD should be trading between 1.40-1.41.&#8221;<\/p>\n<p>\u201cThat CAD upside risk related to oil is now more relevant given it also now appears to up the prospect of a BoC rate hike and that will help strengthen the CAD\/Oil <a href=\"https:\/\/www.fxstreet.com\/technical-analysis\" data-fxs-autoanchor=\"\" rel=\"nofollow noopener\" target=\"_blank\">correlation<\/a> given it\u2019s now more closely associated to the BoC\u2019s reaction function.\u201d<\/p>\n<p>(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. <a href=\"https:\/\/www.fxstreet.com\/info\/how-fxstreet-uses-ai?utm_medium=internal&amp;utm_source=ai-disclaimer\" rel=\"nofollow noopener\" target=\"_blank\">Know more.<\/a>)<\/p>\n","protected":false},"excerpt":{"rendered":"Derek Halpenny at MUFG notes the Canadian Dollar\u2019s (CAD) immediate advance after the Bank of Canada left rates&hellip;\n","protected":false},"author":2,"featured_media":588850,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[138,219,111,139,69],"class_list":["post-588849","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-business","tag-economy","tag-new-zealand","tag-newzealand","tag-nz"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/588849","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=588849"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/588849\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/588850"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=588849"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=588849"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=588849"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}