BoC to stay likely on hold with no major surprises - MUFG

Derek Halpenny, European Head of GMR at MUFG, suggests that the Bank of Canada will announce an unchanged monetary stance today but the details of the Monetary Policy Report will reveal a downgrade to growth projections following the forest-fires during Q2 that had a notable impact on economic activity, including oil production.

Key Quotes

“BoC forecasts today will likely show a contraction in Q2 to be followed by a strong rebound in Q3 – but if developments were to transpire that pointed to that rebound not taking place, then the BoC cold be in a position of having to ease later this year.

Our forecast for CAD indicates some modest weakness this quarter, in part on our view that risk aversion will remain elevated and crude oil prices may soften modestly. It was notable that yesterday, the IEA upped its projections for US crude oil production for both this year and next while US rig-count data shows an increase in active rigs in six of the last seven weeks. The risk today might be that there is a more dovish tone to the communications from the BoC and Governor Poloz, which could provide further upside momentum for USD/CAD. The 2-year swap spread is now also indicating upside risks for USD/CAD.”