The highlight for Canada this week is today’s BoC rate decision. We are in line with market consensus and expect no change in the policy rate.
Economic data point to a mixed outlook since the last meeting in July. Specifically, while consumer demand and economic activity have accelerated, the signal from the labour market is weak. The six month trend in employment growth is nearly 11k, which is much slower than the average trends of 16.4k and 18.5k in 2013 and 2012, respectively. What’s more, part time jobs account for the bulk of the recent job gains. In August, employment growth is also expected to remain close to trend at 10k.
As such, we look for the BoC to maintain its dovish tone, highlighting the temporary rise in price pressures and the weakness in the economy. Given the split in the economic outlook between the US and Canada, the BoC is likely to lag the Fed in policy normalization during this cycle.
In turn, we look to buy USD/CAD on dips – consistent with Q3 forecast of 1.11.
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