The Bank of Canada maintains a neutral stance but it edged slightly toward a dovish stance because of low inflation. On the upside, it sees some upside risks from stronger US growth and a lower Canadian dollar.
Poloz talks with his hands more than any other central banker
Poloz expressed some frustration on exports and business investment. When he arrived at the BOC, that was his bullish case for the economy but it hasn’t materialized and the bank has struggled to understand why. He said that could still materialize and should “in theory” especially with a US pickup but they want to see evidence before believing it will come this time.
Inflation is the key factor but by lowering forecasts, they leave themselves with more room for disappointing price increases before they’re pressured to lower rates.
The Canadian dollar fell a full cent on the statement but I don’t see anything today changing anyone’s mind about the timing or path or rates. Canadian bank CIBC was already out saying it continues to believe the next move will be a hike. For USD/CAD longs, however, there was nothing here to indicate a squeeze and the upward momentum is tremendous in this pair and that’s what carried the day.
Up next for USD/CAD is tomorrow’s retail sales report and Friday’s CPI data.
