Canadian Dollar Flat As Investors Brace for Interest Rate Decision

The Canadian dollar is trading relatively flat against most competing currencies to kick off the trading week. After witnessing the August federal deficit come in larger than anticipated, investors are now waiting to see how the Bank of Canada (BOC) moves ahead with interest rates now that the general election is over and the Liberals have secured a minority government.

According to the Department of Finance, the federal budget gap widened to $3.67 billion in August, up from $1.47 billion in July. This is the largest deficit since March, driven by a 7.4% increase in spending and a 1.2% decline in revenues.
On Wednesday, the central bank meets and financial markets anticipate that the BOC will leave rates unchanged at 1.75%. In the months leading up to the federal election, BOC head Stephen Poloz insisted that he would not move on rates until after the election. The reason? Canada’s regions are experiencing different economic conditions: British Columbia, Ontario, and Quebec are witnessing modest growth and the Prairies are struggling because of the energy sector.
But that is not to say that the central bank will delay easing for much longer, especially with business investment expected to diminish over the next year amid global trade tensions. With business lending and credit markets unchanged, the BOC may not see a reason to begin easing right now.
A day after the BOC meets, key gross domestic product (GDP) figures will be published. The consensus is that August GDP will edge up just 0.1%. Plus, the IHS Markit purchasing managers’ index (PMI) is forecast to remain in expansion territory for October.
So, the data may not give a clear answer as to whether the BOC should cut rates or not.
The USD/CAD currency pair dipped 0.03% to 1.3055, from an opening of 1.3061, at 18:50 GMT on Monday. The NZD/CAD was unchanged at 0.8286.

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