RBC expects the Bank of Canada's next move to hinge on how much further the Canadian economy softens, with a notable Q2 slowdown in GDP growth and rising unemployment in the forecast.
"We think the path of the BoC will be largely determined by the extent of further softening in the economy," economist Claire Fan writes. "Both we and the central bank are expecting GDP growth will slow sharply in Q2 while the unemployment rate continues to edge higher."
Fan notes that hard data has been mixed but it's skeweed because of tariff front-running.
"Our own tracking of RBC card data pointed to a solid increase in April spending. Job postings, even in the most trade-exposed sectors including manufacturing and transportation, looked to have bounced back, according to early data from Indeed.com."If data is better in Q2 than low expectations, the BOC could continue to hold, though they think some cuts are still coming.
RBC is also concerned about inflation, particularly given the latest CPI report.
"A flare-up at the onset of tariffs sets a bad starting point for inflation trends later this year," Fan writes.
Ultimately, RBC expects a muted effect from tariffs but rising inflation expectations could lead to a more-hawkish BOC.
This article was written by Adam Button at www.forexlive.com. Read More Details
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