Today, the focus among the investment community will be in Canada, the tenth largest economy in the world. It has a GDP of more than $1.6 trillion. They will focus on the bank of Canada, which will release the interest rates decision.
The bank is expected to leave interest rates unchanged at the current 1.75%. Still, investors will pay a close attention to the accompanying monetary policy statement, which will come out with the decision. The expectation is that the bank will commit itself to pausing on further interest rate hikes. All the 24 economists who were surveyed by Bloomberg said that the bank will not hike this time. This will be the fourth-straight hold by the bank.
In today’s decision, the biggest question will be whether a recent trend of weak economic data from the country will prompt the governor to formally put an end to the hiking cycle. This month, the manufacturing PMI of 50.2 has fallen short of the expectations. The housing starts have fallen by 5.7%, which was much lower than the expected gain of 1.3% while the manufacturing sales has slid by 0.2%. Exports and imports have declined while the building permits too have slid. On a positive note, the Ivey PMI of 54.3 was better than the expected 51.1 while the unemployment rate remained unchanged at 5.8%. The median CPI of 2.0% was better than the expected 1.8% and the retail sales growth of 0.8% was better than the expected 0.4%. These numbers have continued to make the case of a prolonged pause of interest rates.
The country has other challenges too. It’s households are the most indebted of all the G7 countries. Therefore, the central bank might want to have high rates to prevent people from continuing the borrowing. In addition, the current earnings season in the US has convinced many analysts that a global recession might not be in the horizon. This has been solidified by the strong economic numbers from China, and the fact that the US and China are close to a deal. These reasons might make the BOC retain a hawkish economic outlook.
On the chart below, the USD/CAD pair has been on an upward trend. The pair’s price has reached a high of 1.3456. This is the highest level in more than a week and is an indication of how dovish investors expect the BOC to be. When there is so much pessimism, markets are usually a bit cautious. Therefore, there is a likelihood that the pair may fall today after the BOC makes its decision. If it does, the pair could test the low of 1.3400 as shown below.