Goldman Sachs forecasts two Bank of Canada rate hikes by January

Goldman Sachs has forecast two Bank of Canada rate hikes by January, a call that implies a shift away from the easing bias markets have priced for the Canadian central bank. The primary transmission channel is the policy rate differential: a higher expected path for Canadian short rates widens the spread against peers, which tends to attract yield-seeking capital and support the Canadian dollar. Short-dated Canadian government bonds and overnight index swap contracts are the most directly exposed, as their pricing would need to reflect a steeper near-term hiking path, while the CAD is exposed through relative carry against the US dollar. Traders will watch the next Canadian CPI release and the Bank of Canada's upcoming rate decision and accompanying statement for confirmation of whether the inflation trajectory supports the hawkish repricing.

The Canadian Dollar (CAD) is tightly correlated with oil prices. BoC rate decisions, Canadian CPI, WTI inventory reports, and OPEC+ decisions all move USD/CAD intraday. Winter fuel demand amplifies oil-CAD correlation Q4/Q1.

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