The Bank of Canada cut interest rates by 25bp to 4.00 percent and warned of more rate cuts to come despite much stronger than expected retail sales.
According to the BoC statement, the risks to inflation were roughly balanced, but the risk to growth is skewed to the downside. Therefore further “monetary stimulus is likely to be required in the near term.” We expect at least another 50 to 75bp of easing this year. Consumer spending is holding steady, but Canada is no longer immune to the slowdown in US growth which is why the USD/CAD rally may not be over. Australia will be reporting consumer prices this evening. The slowdown in producer price growth suggests that consumer price pressures could ease as well. With relatively decent fundamentals, we expect the Australian dollar to outperform the US dollar in the coming weeks.