Oil and fiscal policy to shape future BoC actions

In the policy statement, BoC noted the economic adjustment in Canada is being aided by the recovery in the US, the depreciated currency and previous monetary easing. Q3 GDP seemed to confirm BoC's rhetoric, showing a continued weakness in investment and a strong performance in exports, although more recent high frequency data have been softer than expected. The BoC is expected to stay in hold during next year, in consensus with the market. Monetary policy will be shaped by the behaviour of oil and commodity prices and the execution of the fiscal stimulus proposed by the new government. Markets will be looking for more clarity about fiscal policy in the weeks to come, as the Parliament resumes its activities.

The week is light on data. On Tuesday we receive November's housing starts (consensus 197.5k, prior 198.1k) and on Thursday the new housing price index. Without major local data the loonie is expected to follow the trend set by the dollar and oil prices this week. A moderate nominal depreciation towards 1.40 is expected in the year to come.