Bank of Canada held by Omicron fears

At first flush the BoC rate meeting offered no surprises. Rates unchanged at 0.25% and forward guidance remains the same as well. No change. The BoC consider that economic slack will be absorbed and theinflation target achieved sometime around the middle quarters of 2022. The CAD saw some immediate downside after the release of the statement on some negatives in the statement. 

More dovish emphasis

The impact of the British Columbia floods is weighing on the CAD. The BoC recognise that this could create some further problems with supply chain issues. The BoC also mentioned uncertainty surrounding oil prices. Oil is Canada’s key export and the price of oil heavily influences the outlook for the Canadian economy. The combination of these two uncertainties together led the BoC to conclude that they may weigh on growth going forward. 

A cautionary note

The CAD weakness could easily snap back if the Omicron variant fears subside. The recent jobs report last Friday was strong and the BoC did mention that employment is essentially back to the pre-pandemic level. If the Omicron variant fears fade and the BC floods do not hinder supply chains significantly then the BoC could be on track for a rate hike early next year. However, in the near term this is more bearish for CAD and there could be some near term NZDCAD upside, especially if oil remains pressured.