RBC Capital Markets: BoC Emphasizes Weak Starting Point, Markets Price 3 Hikes

03:54 PM EDT, 03/20/2026 (MT Newswires) -- RBC Capital Markets said the Bank of Canada emphasized a weak starting point for the Canadian economy in allowing it to be patient in assessing the broader impact of higher energy prices. Recent softness in core inflation reinforces this point. However, Canada is following global yields and is now pricing 3 hikes by year-end, the bank said in its CAD Weekly Soundbites on Friday.

In foreign exchange, USD/CAD faces opposing forces from the USD and crude oil prices in the current environment, RBC expects the USD to be the main driver, with crude oil prices acting as a partial offset.

On rates, the bank noted the BoC was clear that the starting point mattered for responding to the recent oil price spikes and knock-on impacts due to the Iran conflict. In particular, core inflation trending to target and excess slack in the Canadian economy afford the BoC some time to assess the potential timing of any second-order impacts on inflation. RBC said its base case remains no change in the overnight target this year and hikes starting in 2027 with risks skewed to earlier amid the oil shock. The market has priced in a forceful BoC response, with 3 hikes priced this year.

RBC said yields continue to move in a highly volatile way, though CA/US spreads have been contained within recent ranges. According to George Davis, RBC Capital Markets strategist, a daily close above the 3.50% threshold will be required to sustain the uptrend in yields after last week's false break, bringing last year's high at 3.62% back into view. The 3.25-3.35% resistance area is expected to attract selling interest in bonds while the war persists and oil prices remain firm.

Looking ahead, RBC Capital Markets said the domestic calendar is very light. Core inflation registered a fourth straight soft print and the BoC was mildly dovish - emphasizing the weak starting point for the economy - in Wednesday's meeting. SEPH payrolls (Thu) will likely be followed closely to see if the recent weak trend in job growth continues. BoC Senior Deputy Governor Rogers (Thu) speaks on the economic outlook and financial system.

Globally, RBC Capital Markets said the next G10 central bank meeting will be Norges Bank (Thu). Data wise, 'flash' PMIs are due in the UK, Euro area, and the US (Tue). Japan, Australia, and the UK will publish CPI (Mon-Wed). Other releases include retail sales in the UK and the final UoM sentiment in the US (both Fri, watch long-run inflation expectations).

MT Newswires does not provide investment advice. Unauthorized reproduction is strictly prohibited.