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Avery Shenfeld, analyst at CIBC, points out that economic conditions have changed since the last Bank of Canada meeting, setting up the context for a perceptible pause in rates on Wednesday.  

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“While it’s found some stability, WTI oil prices are about $20 weaker than when the October MPR came out. Canada’s heavy oil benchmark, WCS has rebounded to within reach of the Bank of Canada’s assumed 2019 average, but only because of production cuts that will take two ticks off annualized real GDP growth in each of Q4 and Q1. More broadly, wage inflation seems to be in retreat, and GDP growth has been zero over the most recent two months. South of the border, both the Fed Chair and Vice Chair sounded less assured that American overnight rates would keep climbing as steadily as they have in the past year. That sets up the Bank of Canada for an obvious pause in rates this week, but the more interesting question is how much it will choose to walk back its assuredness that 2.5-3.5% is where we’re headed thereafter.”

“Being a non-MPR meeting, it won’t be issuing a revised outlook, but if it chooses to provide full disclosure, it should mention at least some downside risks to its 2.1% Q4 call, given the weak finish to the third quarter and the impacts of oil production cuts.”

“We were on the dovish end of the consensus of forecasters in expecting only another 50 bps in hikes next year, but since we made that call, the market has moved to that same conclusion, with a stretched out timetable for getting there. As a result, even if, as we expect, Poloz does walk back a bit of the hawkish talk but falls short of a complete U-turn, there isn’t really room at this point for short rates to rally, or for a dent in the Canadian dollar as a result. Instead, look for other developments to play a larger role in steering both rates and the FX market.”

“We’ll need to see reasonable hiring, and signs of strength in non-energy export volumes in October, to keep a January rate hike in play. Although we don’t see room for more than two BoC hikes next year, our expectation that OPEC+ production cuts will prompt a further rebound in global crude benchmarks could firm up market expectations for BoC hikes and give a bit more support to the loonie.”