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Traders Face Risks With Bets Bank of Canada Will Outdo Fed on Hikes

  • Market pricing in almost 1-in-2 chance of BOC hike this month
  • Bank of Canada has tended to trail Fed in tightening policy
Tiff Macklem, governor of the Bank of Canada
Tiff Macklem, governor of the Bank of CanadaPhotographer: David Kawai/Bloomberg

Traders have boosted expectations for the pace of central bank rate hikes in Canada even more than in the U.S., provoking questions about whether the market might have gone too far, too fast.

Swap markets are indicating that a Bank of Canada increase by the end of March is a done deal and there’s a decent probability it could come as early as this month, with pricing suggesting around a one-in-two chance of a standard quarter-point move at the upcoming gathering. The March meeting of the Federal Reserve, on the other hand, is still less than 100% priced in, although traders have amped up the prospects for an increase then. Meanwhile, for 2022 as a whole, Canadian rate traders are now anticipating five or more hikes, compared to either three or four for the Fed.