The loonie fell 0.32 of a cent to 77.52 cents USA, a day after the currency had rallied almost a penny against a weak U.S. dollar and higher oil prices.
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“While Canada’s economy shrank in the second quarter, the bank still projects a substantial rebound in the second half of the year”, the Bank of Canada said.
“Anemic capital spending plans, even outside the energy sector, suggest that the draw of a cheaper Canadian dollar isn’t yet enough to offset sluggish global growth and the resulting lack of pressure to add fresh capacity”, Mr. Shenfeld said.
The Bank of Canada (BOC), which cut its rate twice past year by a total of 50 basis points, added the risks to its inflation profile had “tilted somewhat to the downside” since its July forecast.
The Bank’s next interest rate announcement takes place October 19. “It sends a message that the Bank of Canada is certainly further away from hiking rates and opens the door a crack to cutting rates if need be”, he said. However, the economy grew in June and the latest trade figures from Statistics Canada showed export gains in July. GDP in the second quarter took a hit from the Alberta wildfires in May.
The central bank said the resumption of oil production and rebuilding in fire-affected Alberta should contribute to a rebound in the third quarter.
The bank again looked to Prime Minister Justin Trudeau’s Liberal government to help boost the economy, saying that growth in the fourth quarter is projected to remain above potential as federal infrastructure spending starts to have more impact.
The U.S. economy was weaker than expected in Q2, driven by a drop in business and residential investment.
In spite of the bank’s optimism, some economists are already scaling back their expectations for next year and beyond.
Financial vulnerabilities still exist, however, with household imbalances continuing to worry the Central Bank. Headline inflation is below its 2% target, largely because of lower gas prices, while core inflation, which strips out some volatile components of consumer spending, is close to 2%.
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That marks a change from the previous statement, in which policy makers said the risks to the inflation profile were “roughly balanced”. “The Bank’s Governing Council judges that the overall balance of risks remains within the zone for which the current stance of monetary policy is appropriate, and the target for the overnight rate remains at 1/2 per cent”.
