BoC to ease further in the months to come

This is an eventful week in Canada, with Federal elections on Monday and the meeting of BoC capturing market's attention. Last week, the Liberal party consolidated its lead in the polls, with Conservatives following not far behind. 

With no party expected to attain an outright majority, there is uncertainty about which will be the most likely governing arrangement. Even though historically national elections have had a muted effect on the CAD, options are pricing a spike in volatility for this week. 

In addition, on Wednesday, the BoC will announce its interest rate decision and release its quarterly Monetary Policy Report (MPR). The economy is still struggling with the effects of low oil prices, compounded by weak global demand and a potential loss of momentum in the US. 

No changes are expected in policy at this meeting and, as such, the overnight rate is likely to stay at 0.50%, in line with the consensus. However, any change in the economic outlook in the MPR will be closely scrutinized by the market, as it is likely to pave the road for future BoC action. 

"The market expects the BoC to remain on hold for at least one more year, while there are further downside risks to economic activity that might call for easing sooner. As such, further easing is likely in the months to come that would help the CAD to move towards our forecast of 1.41 during next year", says Barclays.

In terms of data, August retail sales are released on Thursday, with the consensus expecting a slight improvement in the core print from the flat reading last month. On Friday, September CPI data will be released, which should confirm the firm footing of core inflation.