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The Bank of Canada is set to leave rates unchanged but acknowledge robust growth prospects. But while no change is expected from Ottawa at this juncture, the mere reluctance to act forcefully against a steepening Canadian yield curve may unleash fresh loonie strength, FXStreet’s Analyst Yohay Elam reports.

Key quotes

“The BoC is set to release updated growth and inflation forecasts and these will likely be upgraded. It will be hard to justify any effort to lower returns on debts when prospects are elevated. BoC Governor Tiff Macklem, who holds a press conference after this publication, will find it hard to answer questions about desired low yields just after presenting a rosy picture.”

“The recent OPEC+ decision to extend production cuts has pushed petrol prices higher – making relatively costly Canadian oil more attractive to extract. Exports of the black gold have been material to the C$, and only by recognizing the impact of elevated output, the BoC would give a green light for additional gains.”

“Roughly three-quarters of Canadian exports go to the US, and monetary policy has often followed that of the Federal Reserve. That makes the BoC’s monetary policy more tied to comments by Fed Chair Jerome Powell than any other central banker. If the Fed allows for Treasury yields to rise, the BoC may find it hard to intervene and push long-term borrowing costs lower.”