CIBC discussed its interpretation of today's BoC meeting; arguing the meeting supports their call for a rate cut in April.
Sitting comfortably with an economy near full employment and the 2% inflation target, there was no pressing reason for Governor Poloz to get up from his easy chair today, but the Bank is now a bit more worried that it will have to act. Rates were left on hold at 1.75%, but the accompanying statement didn't sound as assured that this would continue to be the case. Its concluding line mentioned that it will be "watching closely" for signs that the recent slowdown persists, particularly watching consumption, housing and business investment.
We'll hold to our view that a climb in unemployment in the coming months will tests the Bank's confidence about consumption, leading to a quarter-point cut in April. Bullish for short rates and bearish for the C$, given the more dovish statement than expected by markets today.
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At their May meeting, the RBA stressed that in order to avoid any future easing, there would have to be a marked improvement in Australia's labour market.
However, last week's employment report for April saw the Unemployment Rate tick higher to 5.2% from March's 5.0%. Furthermore, although Employment Change was positive, a deeper look into the report shows a gloomier picture than the headline would suggest with Full-Time Employment Change printing at -6.3K.
Given Australia's overall disappointing April employment report, the market now expects the RBA to ease rates at their June meeting. According to ASX 30 Day Interbank Cash Rate Futures, as of 20th May, the market is pricing in a 69% probability of a 25 basis point cut on June 4th.
Elsewhere, tensions between the US and China over trade negotiations continue to escalate, further supporting our bearish bias.