Mitsubishi UFJ: If the Bank of Canada raises interest rates, the upside for the Canadian dollar remains limited

⑴ Mitsubishi UFJ Bank analyst Derek Halpenny stated in a report that even if the Bank of Canada raises interest rates as signaled earlier by Governor Macklem, the upside potential for the Canadian dollar remains limited. ⑵ He pointed out that the market currently assigns a 76% probability to a 25 basis point rate hike by the Bank of Canada, which means that if the rate hike is ultimately announced, it could still deliver a certain "surprise" to the market. ⑶ However, he believes that the signals released by Macklem are unlikely to make the market consistently believe that the Bank of Canada will enter a prolonged rate hike cycle in the future. ⑷ Current market pricing shows a total of 100 basis points in rate hikes by September next year. ⑸ He also stated that before the Federal Reserve announces its rate decision, market participants will remain cautious.