Bank of Canada: rates on hold on Trump’s uncertainty - ING

Today the Bank of Canada, as expected, left interest rate unchanged at 0.50% and kept a neutral bias. James Knightley, Senior Economist at ING, explained that uncertainties regarding Trump policies weight significantly on the central bank. They see bearish factors for the CAD. 

Key Quotes: 

“It’s all about what President Trump and his new team will do that appears to be driving the Bank of Canada. In keeping rates on hold, it says uncertainty about the global outlook is ‘undiminished, particularly with respect to the United States’.  It’s maintaining its target for the overnight rate at 0.5%

“President-elect Trump’s future decisions are certainly weighing on the Bank of Canada’s Governor, Stephen Poloz. Trump’s  decisions will have a significant impact on the Canadian economy. The reality of what Trump’s administration may bring is unknown and we believe this has left the BoC with insufficient information to make any changes to their rates today.”

“In terms of the FX implications we continue to see the formation of three bearish CAD factors in the near term. The first is BoC / Fed policy divergence leading to a further widening of US-Canadian rates. Secondly, the retreat in the post-OPEC oil price spike as US supply glut concerns re-emerge. Thirdly, a NAFTA trade renegotiation risk premium being priced into CAD as Trump take office. These factors could see a 5% move higher in USD/CAD (up to 1.40) in 1Q17.”

USD/CAD back below 1.3100 on steady BoC