18 Jul 2014
BoC resigned to cautious outlook - RBS
FXStreet (Bali) - According to RBS FX Strategists, it appears likely that, even on an upside surprise, the Bank of Canada is resigned to its very cautious outlook for the economy.
Key Quotes
"We had anticipated the Bank of Canada to retain a dovish outlook at their July meeting this week, but their stance on inflation was even more dovish than we had expected. The Bank of Canada said in their post-decision statement recent strength in inflation was not related to “any change in domestic economic fundamentals.” The BoC also revised down their domestic GDP forecasts, citing a weaker international economic outlook, and does not expect the output gap to close until mid-2016, later than they had anticipated in April. In other words, the Bank of Canada feels that a sustainable return to their inflation target is unlikely for even longer than previously assumed."
"To be sure, the June inflation figures will be notable for the outlook for the BoC, and an above consensus (at 2.3% and 1.7% y/y for headline and core inflation, respectively) should strengthen the CAD. But after the sharp rejection of the recent inflation prints as a sign of reduced slack in the economy, the upside for CAD (downside for USD/CAD) may be more limited should inflation surprise to the topside. It appears likely that, even on an upside surprise, the Bank of Canada is resigned to its very cautious outlook for the economy and is willing to look beyond currently above target headline inflation."
Key Quotes
"We had anticipated the Bank of Canada to retain a dovish outlook at their July meeting this week, but their stance on inflation was even more dovish than we had expected. The Bank of Canada said in their post-decision statement recent strength in inflation was not related to “any change in domestic economic fundamentals.” The BoC also revised down their domestic GDP forecasts, citing a weaker international economic outlook, and does not expect the output gap to close until mid-2016, later than they had anticipated in April. In other words, the Bank of Canada feels that a sustainable return to their inflation target is unlikely for even longer than previously assumed."
"To be sure, the June inflation figures will be notable for the outlook for the BoC, and an above consensus (at 2.3% and 1.7% y/y for headline and core inflation, respectively) should strengthen the CAD. But after the sharp rejection of the recent inflation prints as a sign of reduced slack in the economy, the upside for CAD (downside for USD/CAD) may be more limited should inflation surprise to the topside. It appears likely that, even on an upside surprise, the Bank of Canada is resigned to its very cautious outlook for the economy and is willing to look beyond currently above target headline inflation."