Bank of Canada Rate Hike Odds Jump Amid Rising Energy Prices
Market expectations for an interest rate hike from the Bank of Canada have jumped in recent weeks, with odds now favoring a tightening cycle to start as early as next month.
The shift in expectations comes after the U.S. Federal Reserve delivered its first rate hike in over three years on Wednesday, aiming to rein in inflationary pressures south of the border.
According to LSEG Data & Analytics, odds of a rate hold at the Bank of Canada's next meeting on October 28 were previously pegged at 94%, but have since fluctuated and now stand narrowly in favor of a hike.
Claire Fan, senior economist at RBC, noted that bond market pricing can be seen as a consensus expectation for central bank decisions, and also as a barometer for how market participants view fresh economic data. She attributed the shift in odds toward a possible October hike to persistently high global energy prices tied to the war in Iran.
Market expectations for future Bank of Canada hikes are reflected in longer-term bond yields, which have risen due to concerns over U.S. sovereign debt and some spillover into Government of Canada bonds.