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BoC likely to adopt rate cut in autumn, CAD seen easing in short-term: Commerzbank

The Bank of Canada (BoC) is expected to adopt a rate cut in autumn so that markets would not be surprised if the central bank were to adjust its wording next week, with CAD easing short term, according to the latest research report from Commerzbank.

So far the development of inflation rates did not constitute an issue for the Bank of Canada (BoC). Both the overall rate and the different measures of core inflation were comfortably in the middle of the target range.

The underlying trend also remains unproblematic, but turned to the downside in June. The BoC will keep a close eye on this development. However, things are likely to get uncomfortable for the BoC on another front: the trade conflict, the report added.

As a close trading partner of the US in particular, the conflict with China could indirectly have considerable effects on the Canadian export economy. Even though the Canadian economy is generally still doing well the BoC is likely to get increasingly cautious in view of the imminent risks and will probably begin paving the way for a more expansionary monetary policy.

"An additional argument for a reversal away from its currently neutral approach towards a rate cut would be easing inflation rates. If July data today were to disappoint the CAD would therefore ease as a result, as this increases the likelihood of the BoC sounding more cautious at its meeting next week," Commerzbank further commented in the report.

By Debarati Bir
  • Market Data
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