Bank of Canada Likely to Remain Dovish, CAD to Remain at Low Levels for Time Being

Bank of Canada Likely to Remain Dovish, CAD to Remain at Low Levels for Time Being

Canada is due to release its inflation report for April today, followed by the central bank’s decision next week. The Bank of Canada is quite calm as the inflation of 1.3% is consistent with the central bank’s target rate, said Commerzbank in a research report. The oil price rally is indicating signs of coming to an end.

The central bank continues to be worried about the energy sector. This signifies that the Bank of Canada will continue to be vigilant and is expected to remain dovish in spite of oil price rebounding in the past three months and despite the likely boost to growth be the fiscal stimulus, added Commerzbank.

Meanwhile, CAD has rebounded slightly in recent times from its multiyear lows at the start of the 2016 because of oil price stabilization.

However, it continues to be at historically weak levels. The central bank requires the currency to remain relatively low for some time in order to underpin domestic firms’ competitiveness and stimulate foreign demand, noted Commerzbank. Furthermore, a downside correction in the oil price is expected to be seen in the short term. Hence the Canadian dollar is expected to remain on low levels for now.

The Canadian dollar is expected to appreciate against the USD only towards the end of 2016, according to Commerzbank. “We expect the BoC to increase interest rates for the first time in summer 2017. As a result, CAD should rise significantly against USD, particularly in 2017”, said Commerzbank.

As the European Central bank is expected to be expansionary for certain period, the Canadian dollar is likely to gain against the euro in the long term. The outlook of the currency in the short-term is also expected to be dominated by commodity prices trend, noted Commerzbank.

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