BOC to keep interest rates unchanged on Jan. 22 - TD Securities

Bank of Canada (BOC) will keep its overnight rate unchanged at 1.75% on Dec. 22 and maintain its cautiously optimistic tone, according to analysts at TD Securities. 

Key quotes

BOC will acknowledge softer household spending but are likely to argue that population growth and wages will support solid spending growth going forward while easing trade tensions will support business investment and exports.

We expect the central bank’s forecast for growth in 2020 and 2021 to be unchanged at 1.7% and 1.8% respectively, with upside risk to the 2021 growth forecast.

The forward-looking component of the communique may drop its emphasis on trade conflicts, but data dependency will be the motivating decision behind all rate decisions, and we expect the Bank will continue to single out household spending as a topic of particular interest. 

We remain long USDCAD ahead of the BoC meeting, reflecting in part a pullback of the local growth story. The current weakness seems priced in and yet any further
softening would reinforce a push towards 1.33. We also still like the upside in AUDCAD.

The USD/CAD pair is currently trading at 1.3068 and has been restricted largely to 1.3105-1.3026 since Jan. 9.