We believe the Bank of Canada will be watching for an acceleration in wages and inflation to calibrate its speed of interest rate normalization. The 10-year Canadian government bond yield will likely consolidate around 2.3% before making its next move. We are currently short Canadian interest rates.
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Australia:
The Reserve Bank of Australia (RBA) held rates neutral as expected in February. In a statement, it said it believes there will be gradual improvement in the economy, and it remains committed to being patient on interest rates.
The RBA also continues to be concerned about sluggish wage growth and anemic consumption. Therefore, despite a strengthening economy, the RBA is likely to remain on hold for the foreseeable future. We remain neutral on Australian rates as there is no catalyst for change in either direction.
India:
Government bond yields have risen significantly since last August after several upside inflation surprises. January inflation came in at 5.1%, close to market expectations.2 We believe the consumer price index will stay in a range of 5% to 5.2% in the first half of 2018 before reverting to 4.5% in the second half, although risks are skewed to the upside.
We expect the Reserve Bank of India to maintain its hawkish stance but stay on hold through the first half of 2018. We believe its next move will be a rate hike rather than a cut. Current interest rate levels are attractive in our view, but we are waiting for more clarity on inflation before going long Indian rates.
This article was republished with permission from Invesco Powershares.