World’s largest money manager says Bank of Canada will hold rates in July

The world’s largest money manager is revising its expectations for the Bank of Canada’s policy tightening path.

BlackRock Inc. no longer sees the BOC raising interest rates at the conclusion of its July 11 meeting, after Governor Stephen Poloz struck a dovish tone during Wednesday’s highly anticipated speech. The shift echoes a similar change in sentiment among short-end traders, who are now pricing in roughly 50-50 odds of a rate hike, down from almost 80 per cent just two weeks ago.

Poloz said tariffs will figure “prominently” when deliberating on next month’s policy decision, and reiterated the central bank’s dependence on economic data, which has come in below expectations in recent weeks. The Canadian dollar weakened to a fresh year-to-date low of 74.70 US cents versus the greenback in the aftermath, although it recovered some ground Thursday and was around 75.23 US cents as of 7:25 a.m. in New York. A less hawkish BOC wouldn’t bode well for a loonie that’s already down more than 5 per cent this year as the global trade outlook and North American Free Trade Agreement negotiations grow increasingly fraught.

The BOC meeting “is definitely live, and it’s very data-dependent down to the last drop,” Aubrey Basdeo, head of Canadian fixed income at BlackRock, said after Poloz’s speech. “The heightened macro uncertainty is a function of the trade issues, and that should drive the weaker data that is likely to manifest itself.”

Ahead of the July meeting, Basdeo will be keeping a close eye on two upcoming Canadian economic data prints in particular: April’s gross domestic product release, due Friday, and June’s employment figures, due July 6.

“If GDP, for some reason, surprises to the upside and the unemployment numbers are strong, the market will rush to reprice,” Basdeo said. However, that’s not his base case. “The GDP numbers will not support them going in July, and the employment numbers that follow are going to be the icing on the cake.”