Bank of Canada: Balancing Act on Rates Amid Economic Challenges

CAD: BoC may prefer a hawkish hold today

The Bank of Canada announces monetary policy today, and there is a strong consensus that rates will be kept unchanged. The big question from a market perspective is to what extent the BoC will acknowledge the deterioration in the economic outlook and scale back its threat of another rate hike.

As discussed in our BoC preview, the recent commentary has turned more dovish, and third-quarter growth figures were very weak. That said, last week's jobs figures in Canada came in on the strong side, likely keeping fears of a passthrough of a still-tight labour market to inflation alive at the BoC.

We think jobs data and the desire to push back against rate cuts will convince the BoC to retain a hawkish bias today. Considering the market is pricing around 100bp of easing next year in Canada, there is some room for a hawkish review of expectations and some support for the loonie. That said, CAD’s strong correlation with US data means that external factors will remain the key driver.