Fall in USD-CAD likely to be limited

Nobody knows what the situation would have been like without Bank of Canada (BoC) governor Poloz's step taken out in January of cutting interest rates in a surprise move to protect the Canadian economy against the effects of the falling oil price was not a resounding success. 

Certainly there is no sign yet of the economic recovery in Q2 expected by Poloz. So does that mean that Poloz will go the whole hog today and cut interest rates once again? Half of the analysts polled by Bloomberg expect that. 

Following the Iran agreement yesterday and the expected negative effects on the oil price the risk has certainly risen. However, there are also reasons why Poloz might stick to his optimistic outlook for the time being. The situation on the labour market remains quite promising and demand from the US also seems on the up. 

In view of mounting risks on the housing market and concerns about rising private debt levels we see a marginally higher likelihood of the BoC taking a wait and see approach leaving interest rates unchanged. 

"However, the fall in USD-CAD is likely to be limited, as Poloz will make it clear in the press conference and the monetary policy outlook that the bank is prepared to take further measures if the data does not improve as expected. USD-CAD is therefore unlikely to leave the area around 1.26 long term", forecasts Commerzbank.