Canada: Poloz sticks to the script on inflation - TDS

BoC Governor Poloz argued that recent weakness in inflation can be explained by the Bank of Canada's traditional framework and the presence of one-time factors, downplaying the notion that the Bank's current framework is insufficient for explaining recent shortfalls, points out the research team at TDS.

Key Quotes

“Poloz also highlighted the role of labour market slack in explaining inflation by noting that wage growth has remained weak.”

“Poloz repeated that the Bank will proceed cautiously on future rate hikes and that "a lot of pieces need to fall in place." We continue to expect the next rate hike to come in January.”

“Rates: We will continue to favour owning 2s and 3s versus the belly of the curve, but we caution that with 2s now pushing below 1.40 there is significant scope for a sell-off on a positive data surprise.”

“FX: The speech reinforces our view that much of the bad BoC news is priced into CAD, suggesting a bit more room for the USDCAD to run lower. We maintain our shorts exposure established at 1.2770.”