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Morgan Stanley Expects Strong Tightening from Canada

March 8th, 2010 Michael McDonough

Sophia Drossos, the co-head of global FX strategy at Morgan Stanley, believes Canada will soon begin tightening rates based on the Central Bank’s inflationary concerns. Sophia said, “We’re looking for them to deliver 50 basis points rate hikes in the second quarter, and the market is slowly coming around to our point of view because the fundamentals in the data have been so strong.” She went on to say, “We think the rate-hike cycle is going to start in June and continue through the end of the year, and we’re looking for 125 basis points rate hikes, and the market’s only pricing in about 60.”

Canadian Dollar:

Source: Bloomberg

*The CAD has been one of the G10’s best performing currencies in 2010, only behind the Japanese Yen.  The worst performer has been the British Pound. 

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