Let Nordics Run Their Course
Having felt conditions were ripe for a CAD rally, we were taught a harsh lesson on Wednesday by the BoC: never ever underestimate the determination of a small, open economy’s central bank to defy expectations for a positive outlook. For them, the tightening impact of any currency gain is simply too big to risk and retaining maximum policy flexibility means being as conservative as possible. Even the Fed
adopted the ‘err on the side of easing’ stance in September, though for them the dollar is a side issue. Regardless, this is the message we take into Thursday’s Scandinavian policy decisions: inflation surprised to the downside in both Norway and Sweden in September, so trim longs and don’t expect any favours.
Read the full report: UBS