BoC: Expect a more pronounced dovish slant in the forecasts and rhetoric - BBH

Research Team at BBH, suggests that the Bank of Canada faces an economy that is struggling to sustain positive momentum. 

Key Quotes

“In 2015, Canada's monthly GDP fell in six of the twelve months.  The pattern is intact this year, with two contracting months in the first four.  May's GDP will come out toward the end of the month.  Labor market improvement has stalled.  Net exports appear to be a drag as record large trade deficits were recorded in the April-May period, and non-energy exports contracted in May.

Over the past two months, the implied yield on the December BA futures contract has fallen almost 25 bp (to 82.5 bp).  The market has begun to price in the chances of a rate cut.  However, investors would be surprised if the Bank of Canada were to deliver a rate cut now.  The Canadian dollar, at least initially, would fall, especially as it would come as the market upgrades (on the margins) the risk of another December Fed hike.  Rather than a rate move, expect a more pronounced dovish slant in the central bank’s forecasts and rhetoric.”