Bank of Canada likely to hold rates today

The Bank of Canada is expected to keep interest rates unchanged today. Canada's inflation in January was 2%, which is the central bank's target rate. The recent increase in oil prices and the outlook of a fiscal stimulus program is expected to dampen any worries regarding the economic outlook. Nevertheless, the central bank should ensure that it does not sound too positive since the weak CAD is an important factor in Canadian economy's positive development. However, since mid-January, the Canadian dollar has appreciated notably.

The central bank is not expected to want further appreciation. At present USD-CAD levels are around 1.33 and are expected to be tolerable for the BoC. Below that level, the central bank is expected to get nervous as the current successes against the consequences of the lower oil price will increasingly be at risk. Hence, in spite of a notable increase in oil prices, there are risks on the upside in USD-CAD for the time being.