Bank of Canada: should not be viewed positively - Nomura

In respect of the the Bank of Canada, (BoC), overall, while the BoC removed the reference to downside risk to inflation, they believe this is mainly the result of downward revisions to growth and inflation and, hence, should not be viewed positively.

Key Quotes:

"Moreover, the cautious tone conveyed in the statement does not change our fundamental view and we continue to expect the BoC to remain on hold for the rest of the year. In our view, the statement remains relatively dovish, especially because of the mention in the Press Conference’s Opening Statement that “[the] Governing Council actively discussed the possibility of adding more monetary stimulus at this time, in order to speed up the return of the economy to full capacity.” However, we believe that any necessary stimulus to support the economy is more likely to be delivered through fiscal policy rather than through further cuts to the policy rate."

"On this front, the coming Fiscal and Economic Update by the Department of Finance (likely in November) should be watched. The outsized reaction of USD/CAD to the BoC’s decision is likely explained by higher oil prices, with USD/CAD declining some 0.7% since the announcement.

Nevertheless, it also highlights somewhat that market expectations were possibly skewed towards a more dovish communiqué. Nevertheless, as we said previously, the BoC statement should viewed as dovish, not hawkish."