The Bank of Canada decision is out at the bottom of the hour. The big question is whether they will adopt a direct easing bias or foreshadow a rate cut. The December jobs report was awful but the key for the BOC is inflation.
The BOC moved toward the dovish side of the “zone” at the Dec 4 decision and noted that “the downside risks to inflation appear to be greater” than previously. Later that month, the November CPI report was mixed with month-over-month changes higher than expected while year-over-year measures were slightly lower. The key data point for the BOC won’t be released until Friday, when the December CPI report is due. I suspect the BOC has been briefed on the preliminary findings and that could tip the balance.
There is a high risk of a confused market reaction. The BOC may include fresh dovish commentary on inflation but it could add a nod toward stronger US growth and the depreciation of the Canadian dollar. The key line is the final part of the statement:
The Bank judges that the substantial monetary policy stimulus currently in place remains appropriate and therefore has decided to maintain the target for the overnight rate at 1 per cent.
In USD/CAD, look for bids at 1.0920 and offers from 1.0980 through yesterday’s high of 1.1019.
Poloz will hold a press conference at 11:15 am ET (1615 GMT).
