Canadian economy holding up, but COVID a lingering concern
|Summary
The Bank of Canada held its policy rate at 0.50% at its January monetary policymeeting, and maintained its quantitative easing program at its current pace of assetpurchases. The central bank noted some caution about near-term growth prospects,and now projects a contraction in Q1 GDP growth. However, as progress is madeon the vaccine rollout, in addition to scal stimulus and higher commodity prices,policymakers expect economic activity to rebound over the longer-term.
Despite an increase in COVID infections and the reintroduction of lockdown measures,the longer-term economic outlook appears to be encouraging, and we look for arecovery to gather momentum from the second half of 2021.
We remain relatively positive on the Canadian dollar's prospects and look for thecurrency to strengthen against the greenback over the medium to longer-term. Wetarget a USD/CAD exchange rate of CAD1.2200 by the middle of next year.
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