BoC is expected to hold the overnight rate steady at 0.50% - RBC CM

Sue Trinh, Head of Asia FX Strategy at RBC Capital Markets, explains that the BoC is expected to hold the overnight rate steady at 0.50% in May and reinforce the “decidedly neutral” stance presented in the April MPR.

Key Quotes

“The brief accompanying statement is likely to suggest that the Q1 slowdown in the US economy is transitory and that the Bank’s forecast for 3.8% annualized growth in Q1 has some upside risks in conjunction with a more moderate gain in Q2. While GDP and employment data indicate that excess capacity in the economy is being absorbed, the Bank is likely to continue citing subdued inflation trends and weak wage growth as evidence of lingering slack.”

“We also expect a cautious tone on exports and business investment, as concerns surrounding US trade policy will have intensified following increasingly protectionist rhetoric from the Trump administration and the kick-off of the three-month consultation process with Congress prior to talks on NAFTA renegotiation with Canada and Mexico.”

“The overall tone is expected to reinforce market expectations that a rate hike is unlikely this year. Support is located at 1.3466, with a close above 1.3590 required to end the current correction.”