Poloz Eyes Exports, Wages and Investment Ahead of Rate Decision

  • Trade data, Bank of Canada busines survey due in coming days
  • Potential progress on Nafta hasn’t yet increased odds of hike

Stephen Poloz, governor of the Bank of Canada.

Photographer: David Kawai/Bloomberg

Growing optimism that a preliminary Nafta deal is within reach hasn’t spilled over into expectations for faster Bank of Canada interest rate hikes, particularly with rising U.S-China tension roiling global markets.

Investors wager there is about a 20 percent chance of a rate increase at the central bank’s policy meeting on April 18, swaps trading suggest, down from 40 percent two weeks ago. A hike isn’t fully priced in until July.

The thinking is that even if a tentative deal emerges from the renegotiation of the North American Free Trade Agreement, policy makers led by Governor Stephen Poloz are looking for reasons to be confident the nation can withstand higher borrowing costs and will want to wait for more concrete signs of a pick up in exports, investment and inflationary pressures before moving again after three increases since last July. Not to mention more stable financial markets.

Here are some of the key numbers coming out before the April 18 policy meeting that could inform the central bank’s decision making.

Statistics Canada releases February merchandise trade numbers on Thursday and policy makers will be looking for some sign of life from exporters, whose performance continues to disappoint even with the benefit of a robust U.S. economy and weaker Canadian dollar.

Non-energy shipments in January were 4 percent below year-ago levels and the malaise in Canada’s export sector isn’t a recent phenomenon. Factoring out price changes over the past decade, non-energy export volumes are still below levels attained before the 2008-2009 recession.

“It’s a question of us waiting and waiting and waiting for an improvement in non-energy exports,” Mark Chandler, head of fixed income research at RBC Capital Markets, said in an interview.

Job numbers for March are due Friday, with economists anticipating another month of “normal” employment gains -- in the vicinity of about 20,000 for the month -- after a hiring boom for much of 2017 when monthly increases averaged 35,600.

The most closely-watched number from the report may actually be wages, which have been showing some signs of strength in recent months as the labor market tightens. Pay rates have posted annual gains of more than 3 percent in the first two months of 2018, something that hasn’t happened since 2016.

Any evidence of further gains, at a time when inflation is already at target, would likely grab the attention of central bank policy makers.

The last major bit of data ahead of the April 18 decision is the Bank of Canada’s own survey of business executives, which is a central input into its decision making. The report, to be released Monday, will provide policy makers with information on everything from whether companies are running up against capacity to their inflationary expectations, but one key detail will be whether uncertainty around Nafta is weighing on business spending decisions.

The central bank’s business outlook indicators have been on a steady rise since lows reached in 2015 and are hovering at some of the highest readings in the past 17 years.

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