RBC Capital Markets: CAD Review

Quotes from RBC Capital Markets

• In the weeks that have followed the surprise January rate cut, oil prices appear to have stabilised around levels consistent with the January MPR assumptions, perhaps reducing the need for any further "insurance" easing. 
  
  
  
• In the data flow since January, there has been little additional evidence in activity or inflation releases that would suggest an imminent need to make another cut in March.
  
  
  
• Indeed, core inflation remained above target in January, and Q4 growth came in only marginally shy of the Bank's 2.5% projection. In addition, remarks from Governor Poloz indicated that the January rate cut "buys us some time to see how the economy actually responds" to weaker oil prices. 
  
  
  
• Consequently, our economists believe the Bank will opt to maintain the overnight rate target at 0.75% at this meeting. How CAD reacts to this will depend as much on the statement as on the decision itself. 
  
  
  
• Although no cut in itself would be marginally positive (6bp is priced in OIS), a statement that boosted the prospect of an April cut (only 12bp priced currency) would be net negative, even with an unchanged decision today.