Bank of Canada will probably look through the current weakness

The Canadian economy contracted 0.1% in January. Goods-sectors had a surprisingly solid showing in the month, up 0.3%. Ironically, some of the strength came from mining, oil & gas which jumped 1.4%.

Services sector activity shrank 0.3% in January, with huge declines in wholesale (-2.6%) and retail (-1%) trade weighing heavily. The weakness in those two sectors was expected after some very soft reports earlier this month. 

"There's no denying that the Canadian economy had a poor start to 2015, but the drop in GDP wasn't nearly as bad as some feared. For now, our call for Q1 GDP growth of 0.5% is reasonable, but there remains downside risk. With February activity likely to be weak as well, there's a decent chance that Q1 GDP could be negative. 

The soft data are consistent with Poloz's expectations for the oil-shock-related weakness to be more front-loaded. That suggests the Bank of Canada will probably look through the current weakness. The big question is whether Q2 rebounds as the BoC anticipates-that will likely be a key driver for monetary policy." BMO Capital Markets notes in a report on Tuesday