This afternoon the Bank of Canada left their interest rate on hold at 1.25%. At the press conference Governor Stephen Poloz seemed to be fairly upbeat as he confirmed interest rates could be hiked in the upcoming months as he expects a boost from increased foreign trade and higher wages in the upcoming months. However the Governor did announce that the uncertainty surrounding the NAFTA agreement is still a concern even though the prospects of a revamped NAFTA agreement looks more likely.
Earlier in the week the Canadian dollar performed well due to oil prices reaching a three year high and oil is Canada’s largest export and inflation remains above the Bank of Canada’s 2% target. Canada are set to release their latest inflation numbers Friday at 12.30pm and investors will watch this closely. If its the case inflation rises up to 2.3% from 2.2% I expect an interest rate hike will occur at the next meeting on May 30th. At present the consensus is that there is more than a 50% chance.
In regards to the NAFTA agreement, earlier in the week Vice President of the US Mike Pence stated that a deal could be struck in the upcoming weeks and I believe his comments were reflected in Governor Stephen Poloz tone. If an agreement is struck in the upcoming weeks or months this can only be good news for the Canadian dollar and we should expect to see a period of Canadian dollar strength.
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