What to watch for
The Bank of Canada is one of the few major central banks that hasn't eased this year and that's not going to change today.
The market is pricing in just a 2% chance of a cut today and that only rises to 13% by year end. If anything, I expect today's decision to confirm that they will be on the sidelines well-into 2020.
The main part of the BOC statement to watch is the final paragraph. The Sept 4 decision said:
Canada's economy is operating close to potential and inflation is on target. However, escalating trade conflicts and related uncertainty are taking a toll on the global and Canadian economies. In this context, the current degree of monetary policy stimulus remains appropriate. As the Bank works to update its projection in light of incoming data, Governing Council will pay particular attention to global developments and their impact on the outlook for Canadian growth and inflation.
Since then, Canadian data has remained strong and the US-China trade war has ebbed.
Just days after the BOC decision, Canada added 81K jobs in a sizzling jobs report. That was followed by another 54K jobs in Sept to cap the best 12-months of jobs growth in Canada since 2003.
Canada is also one of the few major economies where inflation is close to 2% on both headline and core.
If there is one soft spot, it's the consumer. The past two retail sales reports have missed estimates and that will probably merit a mention from the BOC. But with wage growth accelerating and low rates underpinning a resurgence in housing, I doubt the BOC is overly concerned.
If there is one risk in this report it's that the BOC strikes a hawkish tone. The market is pricing in a 46% chance of a cut by this time next year and Poloz has a habit of optimism.
At the same time, the BOC won't want to be significantly above the Fed on rates (they'll be 10 bps higher after the Fed cuts today).
All told, expect the BOC to signal that it's on the sidelines but watching global growth and trade -- much like the recent statement. There could be a warning on slower growth next year but I don't think it would rattle the loonie much.
Watch for continued USD/CAD weakness in the weeks ahead.
