PLUNGING OIL PRICES AND SCARCE DETAILS ON FISCAL STIMULUS MIGHT FORCE BOC TO CUT INTEREST RATE

PLUNGING OIL PRICES AND SCARCE DETAILS ON FISCAL STIMULUS MIGHT FORCE BOC TO CUT INTEREST RATE

At the end of 2015 the possibility of a rate cut from the Canadian central bank in January was low with the majority of analysts putting it beyond the first quarter of 2016. The Federal Reserve had just announced a much-awaited rate hike to the U.S. benchmark interest rate which gave some breathing room to the Bank of Canada (BoC) regarding its next move. The CAD depreciated giving an edge to exporters and boost growth expectations. Now the rapid decline of oil (10.85 percent last week) might force the hand of BoC governor Stephen Poloz. Economists and analysts are divided on what to expect next week as Canadian fundamentals have shifted. Even if the moves are not a surprise, as they were for the most part anticipated, the speed in which they developed and the market reaction has many updating their forecasts of the Bank of Canada’s next move.

Opinions and forecasts are divided on the BoC announcement. A year ago the central bank proactively cut rates ahead of the decline in energy prices. The BoC would cut the interest rate an additional time in 2015 for a record low 0.50 percent. The Liberal’s government lack of details on the March budget that is said to include fiscal stimulus puts the weight of the economy squarely on Stephen Poloz and the Bank of Canada.

The Bank of Canada (BoC) will announce its Rate Statement along with its Monetary Policy report on Wednesday, January 20 at 10:00 am EST. At 10:30 am EST the U.S. Department of Energy will release crude inventories. BoC Governor Stephen Poloz will offer a press conference at 11:15 am EST. The combination of monetary policy announcement and commodity inventories will guide the price action of the CAD. Investors will be monitoring the announcements and their impact on the Canadian currency