High Obstacle to further Bank of Canada's rate cuts

The BoC kept its key rate constant since cut its key rate to 0.75% in January , because it expects the economy to recover from Q2 onwards. But this has been cast into doubt recently. The monthly GDP estimate fell in April for the fourth consecutive month, and foreign trade data for May also disappointed.

This has stoked expectations on the markets and among analysts that the BoC may lower its key rate by another 25 basis points next week, especially if today's employment report for June should turn out disappointing.

But the obstacle to further rate cuts should be high, given high private debt levels and mounting risks on the housing market. And positive signals have also come from theeconomy, mostly outside the energy sector. The latest BoC survey showed that businesses are profiting from the weaker CAD and rising US demand and intend to expand investment and employment. 

"For this reason the BoC is expected to rely on accelerating growth in the US, keeping its powder dry for now and hold its key rate at 0.75%", says Commerzbank.