The Bank of Canada meets on the 21st of October to decide on its next steps regarging monetary policy.
The Canadian dollar (CAD) has enjoyed a solid recovery of late with the the currency joining the broader commodity complex in its move higher.
Commodity prices matter for the Canadian dollar - and so does the Bank of Canada (BoC).
The BoC will be wary of recent strength desiring a lower exchange rate to promote growth in the Canadian economy and keep inflation at its desired level.
Those hoping that the Liberal victory in the recent general elections will spell quicker economic growth will be disappointed as the impact of new spending decisions will take years to be felt.
"Growth in 2016 should see little benefit from a promised expansion of fiscal policy under a newly elected Liberal majority. Past fiscal tightening should continue to drag on the economy before the net fiscal impulse turns positive in 2017 to the tune of around 0.4%," says Sebastien Galy with Deutsche Bank.
It therefore remains the job of the Bank of Canada to drive inflation and growth higher; the BoC will in turn lean on the CAD to do much of the heavy lifting.
"As the net fiscal impulse will take a long time to build up, the Bank of Canada is still reliant on a weak CAD to keep the CPI close to target," says Galy.
Over time Deutsche Bank believe a weak CAD and decent US growth should increasingly help the Canadian economy.
"This suggests the Bank of Canada’s stance will turn increasingly dovish if the CAD rallies until Canada gains enough traction from domestic and US consumption," says Galy.
In the short-term, the Bank of Canada will be watching inflation data out on Friday - Deutsche forecast CPI falling potentially below its lower bound target of 1% on lower oil prices while its labour market data was mixed.
