07 Sep

BOC Rate Decision And August Ivey PMI

September 7, 2021

By Orbex

Tomorrow could be a pretty active day for CAD pairs. This is due to the simultaneous release of two key macro events.

There is a relatively firm consensus on what the BOC will agree to at their meeting. Therefore, there is less of a chance of a large market swing. If the Ivey PMI figures were to miss though, it’ll most likely be the immediate driver of a reaction in the markets.

Canadians are heading to the polls for a snap election on September 20th. Trudeau’s center-left coalition was a favorite to win but has been increasingly underperforming in the polls.

Regardless, the vast majority of economists agree with the BOC that the election will have no impact on the monetary policy outlook.

To continue or pause the taper?

At their last meeting, the BOC cut their asset purchasing program by a further CAD1.0B a week to just CAD2.0B a week.

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This is a relatively small amount, considering the size of the economy, and will likely not have much of an impact. The BOC was initially going to cut it by another CAD1.0B at this meeting.

However, there is a pretty strong consensus that the bank will wait until the next meeting in October to effectuate that further reduction. Technically, it wouldn’t count as a “pause” in the taper. This is because the BOC’s target is to end asset purchasing by the end of the year.

Getting a handle on growth

There are a couple of issues that have shifted the market perception about asset purchases.

Specifically, the first reason was the unexpected negative GDP result for Q2. With covid cases on the rise again, there is a risk that Q3 could be negative, and push Canada into a recession. The theory is that the BOC might want to keep the door open, to support the economy a little longer.

What could concern the markets further is another adjustment to the BOC’s outlook.

Last time, they lowered their expectations for this year’s GDP but raised their expectations for next year. That means, basically, they expect a slower recovery.

Like their southern neighbors, Canadian regulators insist that inflation is transitory, and will be under control next year. The market, however, might interpret a further cut to the growth outlook as “dovish”. This in turn could push the CAD lower.

Where are we going?

Economists project Canada’s August Ivey PMI to come in at 56.0 compared to 56.4 in the prior reading. That’s only technically lower, but still heading in the wrong direction if the country expects to see recovery in the coming months.

Ivey PMI severely underperformed expectations last time. And a result within expectations would be the second consecutive month of this indicator falling.

Meanwhile, Canadian imports are at an all-time high, which puts further pressure on the CAD.

With analysts expecting easing policies to remain in place, and domestic economic growth to be lower, that’s not a good combination for the loonie.

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