Canada has largely been able to stay on the sidelines of the global economic uncertainty.
Therefore it’s likely to not be as much of a beneficiary of the general positive swing lately. But don’t tell that to their stock market, which has been breaching new records this year.
We don’t expect any policy changes at this BOC meeting, but we will get an update on the economic outlook. And this could move the markets a bit!
With the latest turmoil in Libya pushing oil prices higher, there are several arguments for loonie strength over the short term.
What We Are Looking For
There is a unanimous consensus that the BOC will keep the interest rate steady at 1.75%, despite a few concerns about the domestic economy.
We can expect the markets to focus on the monetary policy statement. There, the bank will give its outlook for the economy this year. Any changes from last quarter’s assessment could drive the market.
Many analysts, however, are confident that the BOC will keep its focus on maintaining price stability. Attempts to address internal issues would be mostly rhetorical in this view.
Here we go again
Last month, Governor Poloz mentioned what he called “froth” in the housing market. Just last week, we saw housing prices tick up again, driven primarily by large metropolitan areas.
That the central bank is concerned about the potential impact of lowering interest rates on the housing market, would be an indication of hesitation to cut rates.
The most recent survey of economists shows a pretty strong consensus that the BOC will keep rates steady all year. Many cite a belief that the economy is on a revival streak, which is shifting the bias from easing to hawkishness.
In the shorter term
Other analysts have pointed to the Toronto Stock Exchange, showing three consecutive record highs in stock prices. Combined with the daily RSI reaching well into overbought territory, there is speculation of a market correction in equities – potentially sparked by reports during earnings season – sometime in the near future.
As investors move out of stocks into fixed income, it could provide further support to the Canadian dollar.
Couple that with potential for continued geopolitical issues affecting crude prices, and improving data from last quarter being released later this month.
There are several fundamental arguments for Loonie strength in the near term, with the BOC outlook one of few risks coming up.