A Reuters poll of Canadian economists shows that 55% expect a 25 bp hike from the BOC next week to 1%. For what its worth, 10 of 12 primary dealers  (firms that deal at Canadian bond auctions) see a hike next week.

Looks like we could get some volatility on Wednesday, if nothing else.

• BOC estimates cumulative net benefits of new bank rules for Canada over time to be C$200 bln, or 13% of GDP
• BOC says if total bank capital ratio increased by 2%, for example, Canada GDP level would rise 0.8% per year in long run

Wow, really!!  Personally found the stuff about the Daleks much more interesting……

The path of interest rates is not preordained says BOC official Duguay, but in the next breath hes says given low rates, hikes are almost inevitable. Guess its all a matter of timing. …

Nothing that hasn’t been said before…

USD/CAD is firmer on the day as risk sentiment fades from high early levels. USD/CAD is at 1.0365 from 1.0255 lows early in the session.

• No preordained path for interest rates
• Business in excellent shape but not investing, expects turnaround
• US double-dip prospects very low
• Deputy-Gov says no specific target for neutral interest rates

Bottom-line: Gov. Carney continues to try and play down expectations of an automatic rate hike at the next BOC meeting…

• Monetary Policy Report cut Q2 GDP view to 3.0% from 3.8%, Q3 to 2.8% from 3.5%
• Assumes 1.0415 USD/CAD rates from 1.01 in April report
• Inflation seen more subdued than in April report

• Recovery to be more gradual than forecast in April
• Inflation in-line with projections
• Lowers GDP forecast to 3.5% from 3.7% this year, 2.9% from 3.1% next year
• Housing activity declined markedly from high level, employment growth has resumed
• Europe slowing global growth, US demand picking up but remains uneven
• Sees slower global growth than previous due to budget cuts

The CAD is weaker as the market prices out a series of rate hikes ahead. We trade now at 1.0555 from 1.0520 before the data.

The Bank’s full statement can be read here.

Canada has become a favored destination for international capital, Carney says. Monetary policy may have to be adjusted to reflect that.

Translation, rates may stay lower than they otherwise would to discourage hot money flows.

The trouble for Carney is that the US tried that approach in the early part of this decade and a credit bubble formed…

Bank of Canada Governor Carney makes the rare admission that Canadian monetary policy is basically out of domestic hands. The net impact of international forces on the domestic economy will determine future monetary policy moves. He says Canada is at a turning point in the cycle but that there is a great deal of uncertainty. Poor productivity growth in Canada contrasts unfavorably with the situation in the US, he adds, in a Reuters interview.

USD/CAD trades much higher today, up at 1.0383.

The strong CAD has been dampening the Canadian recovery and will be a factor in assessing the economy and monetary policy.The recovery will continue but moderate, Lane says. China’s currency move will help rein in global imbalances and take pressure off the Canadian dollar, he says.

That’s not exactly a surprise, as the exchange rate is always a factor in Canadian monetary policy but Lane does make a case that the drag could dissuade multiple further hikes in CAD, as the market presently expects.

USD/CAD is near session highs, helped by these comments and by a pullback in crude. Oil is down $0.67 at $77.15.

BOC deputy Governor Lane says that the Canadian economic recovery is proceeding more rapidly than expected. On the other hand, the strong CAD, poor productivity and low US demand are acting as a drag on the Canadian economy. Downside risks are the bank’s main focus as it assesses financial stability and any further rate hikes spend on the outlook for growth and inflation, Lane says.

USD/CAD trades at mid-range on the day, at 1.0225.

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