Bank of Canada expected to remain on hold

Neither markets nor analysts look for the BoC to cut rates today (OIS has just -3bps priced in). The Bank's last statement was very balanced and any shift in tone this time around is likely to be modest. One major takeaway- the output gap projected to be closed in "the first half of 2017-should be maintained. The pattern of growth could be tweaked, however. 

While Q3 growth looks stronger than assumed in July, the momentum reflects some rebound in oil and motor vehicle production following temporary shutdowns, with growth rates unlikely to be sustained. Near-term growth could also be hampered by reduced capex in the energy sector. If these cuts are "front-end loaded" as in 2015, then it could lead to a reduction in 2016 H1 growth-currently projected at 2.7% by the BoC. 

Overall, the 2.3% growth rate for 2016 assumed by the BoC is a little higher than current consensus (2.0% by Bloomberg). The new oil price and CAD assumptions incorporated into the BoC's forecast (~US$15/bbl and 5.5% weaker, respectively, than in July) also point to some possible downward adjustment to 2016 growth. Thus, the tone from the statement and MPR could end up being modestly dovish. 

"The flatness of the CA forward curve (and the relative flatness of the US forward curve too) is one reason that we still like using dips as opportunities to position for long USD/CAD. We are long a 1.32/1.35 call spread, bought for 0.54%, expiring 17 March 2016", says RBC Capital Markets.