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The Bank of Canada (BoC) held its key interest rate steady at 0.5 percent on Wednesday, but made it clear that further easing remains a possibility amid heightened uncertainty about U.S. trade policies. BoC said the economy is adjusting to past declines in commodity prices but continues to face uncertainty at the global level and in the U.S. in particular.
The central bank upgraded its economic growth forecast for 2016, 2017 and 2018. According to the Bank of Canada's latest projections, Canadian GDP is now estimated to have expanded by 1.3 percent in 2016 (previously: 1.1 percent), and is expected to accelerate to 2.1 percent this year (was 2.0 percent). The Bank's projection of 2.1 percent growth in 2018 was left unchanged.
BoC is likely to closely observe potential harm to the Canadian economy from possible protectionist U.S. trade measures under the Trump administration but is waiting for more details before incorporating those risks into its official forecasts for Canadian economic growth.
“While prospective protectionist trade measures in the United States would have material consequences for Canadian investment and exports, these measures have not been included in the base case,” said the bank, adding the outlook should be viewed as a “reasonable starting point” that will be updated as Trump’s plan takes shape.
Moreover, the Bank of Canada Governor Stephen Poloz said that the prospects of a BoC rate cut remains on the table should downside risks to current forecasts materialise. However, Poloz also added that the BoC was more confident than before on current forecasts, highlighting a fair amount of agreement with the incoming Trump administration on tax stimulus.
The Canadian dollar fell after Poloz’s comments. USD/CAD spiked to 1.3270 overnight. The pair was consolidating gains on Thursday, trading in a narrow range. FxWirePro Currency Strength Index showed hourly CAD Spot Index was at -99.9568 (Bearish) at 1230 GMT. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex.
