The Bank of Canada is unlikely to hike rates next month in light of the recent U.S. slowdown, but it should be hiking rates faster than the Fed, according to BCA Research.

BCA notes that the economic data released since the Bank of Canada’s last rate decision “have revealed some softening in the Canadian recovery”. In particular, it points to weakness in housing, and softer trade numbers.

“Nonetheless, our view remains that the economy is in solid shape and the Bank will hike rates earlier and at a faster pace than the Fed (in contrast to previous cycles),” BCA says.

BCA says that the central bank would like to continue hiking rates to more normal levels due to strong domestic conditions. “However, external risks may dissuade policymakers from further rate hikes in the immediate future,” it says.

The firm points out that the last statement from the Bank highlighted its concern about the U.S. recovery, even before the latest weak economic data. As such, BCA predicts, “There is very little chance that Canadian policymakers will push ahead with a rate hike next month, when they know that the Fed is considering more policy stimulus.”

That said, it concludes, “As long as a U.S. recession is avoided and oil prices do not drop sharply, there is enough momentum in the Canadian economy to keep it growing at a reasonably healthy clip while the U.S. works through its deleveraging phase.”

BCA predicts that Canadian government bonds will continue to underperform Treasury securities, regardless of whether or not the U.S. suffers a double-dip. “Stay underweight in a global hedged fixed income portfolio and long the Loonie,” it advises.

IE