NAFTA risks not enough to derail BoC to hike 25 bps tomorrow - TDS

"Despite the NAFTA risks that lie beyond, we do not think it will be enough to derail the Bank to hike 25bps tomorrow," TD Securities analysts note.

Key quotes

We note however that the NAFTA tape bombs have introduced more two-way risk for CAD around the decision, we think trade concerns lead to more cautious messaging from the Governor, suggesting that a knee-jerk reaction towards CAD strength should be faded. Further, we doubt that Poloz will look too kindly to roughly 3 hikes priced into the curve (by October) at the moment.

We think the market pricing in as much cumulative tightening as the Fed NAFTA risk and the debt overhang will be motivators for a more cautious profile. As such, we see value in playing CAD on the short-side with NOK and EUR as preferred pairs.