CAD on hold this week, cuts to come further ahead

The BoC is expected to stay on hold at Wednesday's meeting with the market consensus and the OIS curve indicating no change. In recent comments, Governor Poloz has acknowledged the weakness in Q1 and so the fact that the data have reflected this is not news to the BoC. 

However, with the MPR also expected next week, the BoC's forecasts will get a lot of attention.

Barclays says they had highlighted in the past that the full effect of the oil price shock is yet to be reflected in the BoC's forecasts (lower growth and inflation profiles) or their forecasts already indicate their intention to cut rates significantly. 

"With less than 1 rate cut priced over the next year, we think there remains significant scope for re-pricing (least 50bp is expected over the coming six months).  A rate cut at this week's meeting remains an outside risk and we stay long USDCAD spot", continued Barclays

Canadian CPI and retail sales (Friday) are expected to gain market attention. Market participants expect a 0.5% m/m increase in headline and a 0.3% m/m increase in core CPI inflation from 0.9% m/m and 0.6% m/m respectively in February. A weaker inflation outlook is likely to be reflected in the MPR, adding downward pressure to the CAD.