BoC to leave rates unchanged while maintaining cautious optimism – TD Securities

Previewing next week's important macroeconomic data releases from Canada and the Bank of Canada's monetary policy meeting, "we look for the Bank to leave rates unchanged as it maintains its cautious optimism," said TD Securities analysts.

Key quotes

"While the global backdrop has improved from October, the Bank has been reluctant to acknowledge a deterioration in local data and this week's upbeat Business Outlook Survey gives some flexibility to stick to the script. This, alongside unchanged GDP forecasts, should result in a hawkish tone."

"Retail sales are poised for a muted rebound as ongoing softness in motor vehicle sales offsets a 0.5% advance in the ex-autos index. Gasoline prices will provide a modest tailwind but we see little scope for a full rebound in ex-autos and gas. Higher prices should leave volumes lower for the 3rd consecutive month, which will weigh on expectations for Q4 consumption."

"We look for headline inflation to hold at 2.2% y/y in December owing to offsetting impacts of a larger year-ago contribution from energy prices and a more modest tailwind from food prices and transportation. Airfares are a key source of upside risk, but we don’t anticipate anything near the 21% m/m increase last year, and we see downside risks to the Bank’s core measures."