The Canadian dollar was little changed against its USA counterpart on Wednesday, trading in a narrow range ahead of interest rate decisions on both sides of the border that could see the Federal Reserve policy rate dip below the Bank of Canada's.
As expected, today the Bank of Canada (BoC) left the key interest rate unchanged at 1.75%. We continue to see a decent chance of a surprise December BoC rate cut.
"While the bank will never set the table for any rate moves, it's pretty clear that they're quite concerned about the global trade outlook", Porter told Reuters.
BMO's chief economist Doug Porter said in an interview "it's pretty clear" the central bank is anxious about global trade, adding it "gave a number of hints they would be prepared to move if things deteriorate at all in the months ahead".
As such, we think the likelihood of a Canadian interest rate cut is greater than that implied by market pricing.
"Commodity prices have fallen amid concerns about global demand", the central bank said.
"The Canadian dollar has been relatively stable in its primary exchange, which is against the US dollar". The housing market rebounded from a swoon at the start of the year, supported by lower mortgage rates, employment growth and immigration.
In its explanation, the central bank argued that inflation is on target and the domestic economy has held up well in many respects, even though it's feeling the negative effects of slowing global growth.
Investors will take note of the Bank of Canada's mention of the dollar's recent strength, which hurts the competitiveness of Canadian exporters that the central bank routinely characterizes as relatively uncompetitive.
Canadian government bond prices were higher across the yield curve, with the two-year up 2 cents to yield 1.697 per cent and the 10-year rising 14 cents to yield 1.587 per cent. As the Fed pushed USA borrowing costs higher, the Bank of Canada was forced to drop its benchmark rate back to an emergency setting after oil prices collapsed at the end of 2014. "You see what other central banks are doing".
To be sure, an interest-cut isn't a sure thing.
That's easily the best the central bank has done in hitting its target over a prolonged period, and reflects an economy running nicely at about its capacity - neither too hot nor too cold. Fiscal policy could end up doing some of the work of offsetting weaker global growth, if politicians make good on some of their election promises. "It will pay close attention to the sources of resilience in the Canadian economy - notably consumer spending and housing activity - as well as to fiscal policy developments".
The final part of that statement might also have been a suggestion.