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Poloz (BoC) - no need to copy Fed’s actions, BoC might cut rates

The governor of Bank of Canada had two interviews this night. Here is the main message:

  • let’s wait with the assessment what Trump policies (like questioning the North American trade ties) could bring for Canada.
  • inflation to be back at the target in the middle of 2017
  • Poloz hopes infrastructure spending announced by the Canadian government will lift economic growth
  • there is still no decisive influence of new social programs (beefed-up childcare benefits) on consumption
  • Still, the 2H of the year develops in line with BoC growth forecasts

In his second speech he said:

  • US elections outcome is known so a large chunk of business uncertainty is removed, but it is still at a level that requires monitoring. There is no shock yet that would make BoC act, too early to say what Trump means.
  • current account data will play a particular role now; housing market is in good shape
  • If there is a need to act then 0.5% main rate still gives some room to use conventional easing, but unconventional means are also not excluded.
  • there are good reasons to keep the discrepancy between Fed’s and BoC’s policy, Canada will run an independent policy

This made CAD slightly weaker - not only is Trump policy seen as a risk to Canadian economic performance, the OPEC meeting looks more and more like it is going to end witha market disappointment, but also BoC seems to try to benefit as much as possiblefrom Fed’s monetary policy tightening in terms of CAD weakness.

CAD strengthened on oil rebound yesterday and switched to range trading since then.

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