BOC monetary policy preview

Today Bank of Canada (BOC) is to provide further guidance in policy meet. Result to be announced at 15:00 GMT.

Current policy measures

• BOC is maintaining overnight deposit rate at 0.5%

Core objective of BOC monetary policy is price stability which means keeping inflation within range of 1-3%. Headline inflation has fallen close to 1% from 2.5% in 2014.

Economy at a glance

• Canada is small economy of $1.8 trillion approximately, compared to its larger neighbor US.
• As of latest data, Canadian economy just recovered from recession, GDP grew by 0.6% in third quarter, after two consecutive quarterly contraction (-0.2% in first, -0.1% in second).
• GDP growth now stands at 1.2% on annual basis.
• Lower oil price and commodities remain a concern for Canada along with Mexico eating its share of manufacturing exports to US economy.
• Unemployment ticked up recently to 7%, compared to pre-crisis level of 6%.

Return of growth in US is expected to help Canadian economy as a whole.

What to watch out for 

BOC is expected to keep policy on hold today and likely to wait for FED to raise rates. Canadian policy rates already low enough to help the economy as a whole. However at least another rate cut is expected from BOC if situation worsens in oil front.

Some changes in communication would be vital to watch for 

• Changes in inflation expectation ahead. Higher or stable expectation would indicate a longer rate pause by the bank.
   
• Outlook for oil price and impact on the economy.
   
• Changes in growth forecast ahead and manufacturing.
   
• Changes in communication over future.

Impact 

• Canadian dollar is currently trading at 1.337, down -0.07% today so far.

Neutral monetary policy would keep the current range intact, however a change to more dovish tone might prompt the pair to break below the upper bound of the range and depreciate further.

We remain committed to our call given long back, buy USD against Loonie @1.26, targeting 1.285, 1.3, 1.325, 1.355, 1.38 areas.