No surprise, the Bank of Canada (BoC) has kept its overnight rate steady at +1.5%. The bank warned that heightened trade tensions represent a key risk to the global outlook.
In the accompanying communiqué, the central bank reiterated its view that higher interest rates will be warranted to keep inflation on track. It said it would continue to take a ‘gradual’ approach to lifting rates, guided by incoming data, as it gauges the economy’s reaction to higher rates.
The future of Nafta is being closely monitored, along with other trade policy developments, and their impact on the domestic inflation outlook.
U.S and Canadian negotiators are due to resume Nafta talks in Washington this morning after missing last Friday’s U.S imposed deadline. These talks again are expected to be contentious and Canada’s PM Trudeau has stated that a ‘no deal’ would be better than a ‘bad’ deal.
The CAD is trading just shy of the key C$1.3200 level at C$1.3180, up +0.04%. The short-term direction will be dictated by the USD’s fate, at least until Friday’s North American jobs reports.
Market consensus had expected the BoC to remain on hold, citing uncertainty over Nafta and a desire to avoid back-to-back rate hikes would keep the bank on the sidelines until October. The next rate announcement is due on Oct. 24, 2018 and the OIS market is pricing in a +78% odds of a +25 bps hike.
Next up for Canada is Friday’s employment report (08:30 am EDT)