As has been well reported, it was no surprise the Bank of Canada left interest rates at 0.5 per cent on Thursday, however, two very significant statements from the Bank underline future direction.
Firstly, the Bank commented that the U.S. economy is near full capacity whereas Canada has a significant amount of economic slack.
This means we could see several U.S. rate hikes next year even as the Bank of Canada could be looking at cutting rates in the first quarter of 2017 if the economy does not begin to fill some of that slack.
Secondly, the Bank commented on the disappointment that business investment and non-energy goods exports, which the Bank has long identified as critical components of healthy recovery, continue to disappoint.
As we stated yesterday, a U.S. rate hike in 2017 combined with a Canadian rate cut could be a deal a major blow to the Canadian dollar.