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No Change To Canadian Interest Rates

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No Change To Canadian Interest Rates

The Bank of Canada (BoC) has just announced that there is to be no change this month to the country’s key interest rate. This target overnight rate is to remain at 1%, a level at which it has been since September 2008 and hence the announcement did not come as a surprise to the market.

The BoC’s Governor, Stephen Poloz, has not only adopted a wait and see approach over the past year, he has refused to be drawn on the likely timing nor even the likely direction of the Bank’s next interest rate action. The policy in fact appears to be to accept that Canada’s economic prospects are largely coupled to those of it’s near neighbour, the US. This would suggest that likely US Federal Reserve action could be taken as a loose proxy for the timing and direction of Bank of Canada action. Canada’s economy however is currently outperforming that of the US as evidenced by recently released Q1 GDP figures for both countries, Canada managed 1.2% GDP growth compared to the US’s 1% contraction.

Canadian trade data has also been made public this afternoon. Statistics Canada has released Export figures for the month of April as $42.83Bn, this is up on the March number of $42.7Bn but short of the market consensus estimate for $42.9Bn. The Import figure for April is reading at $43.46Bn, compared to $42.62Bn in March and an anticipated number of $42.70Bn. These combined releases make April’s International Merchandise Trade Balance to be -$0.64Bn, as can be calculated this figure was $0.08Bn in March, markets were expecting this to be $0.20Bn in April. The Canadian balance of trade has historically produced a surplus, but this surplus has been more the exception than the rule over the past 5 years. The continuing depreciation of the Canadian Dollar should contribute to a more positive trade balance over time.

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