Bank of Canada likely to continue cutting interest rates – Commerzbank

The Bank of Canada (BoC) is likely to cut its next 25bp rate today, at least according to the vast majority of economists polled by Bloomberg, notes Michael Pfister, FX analyst at Commerzbank.

CAD may be under pressure

“There are good reasons for this opinion. First, inflation has continued to decline recently. Monthly seasonally adjusted rates of change in the headline rate have been in line with the inflation target on average over the past eleven months.”

“On the other hand, the labor market has weakened even more recently. As the labor force continues to grow strongly, so does the unemployment rate. In short, the interest rate level is clearly too restrictive at present, allowing for further easing.”

“The most important factor for CAD is likely to be the extent to which further rate cuts are signalled. Given the latest data, a 25bp cut is likely to be the base case for each of the meetings ahead. Depending on how much room the BoC sees for (even) more significant rate cuts, the CAD is likely to come under more or less pressure today.”