Bank of Canada seen talking up risks to keep lid on C$ rebound

Mon Apr 11, 2016 2:53pm EDT
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By Andrea Hopkins

TORONTO, April 11 (Reuters) - Bank of Canada Governor Stephen Poloz is expected to talk up economic risks and play down signs of stronger growth when the central bank sets interest rates on Wednesday, anxious to keep a recovering currency from choking off exports.

The central bank is widely expected to keeping rates on hold on Wednesday even as it raises growth forecasts to incorporate a stronger-than-expected start to the year and major stimulus spending in the first budget from Canada's new Liberal government.

While Poloz has repeatedly said it is up to the market to set the Canadian dollar's level, economists said he is aware a more cautious tone would keep the currency in a sweet spot that fosters exports and extends the recovery from last year's shallow recession.

"Most of their communication will try to keep the Canadian dollar from strengthening," said Hosen Marjaee, senior managing director, Canadian fixed income at Manulife Asset Management.

The Canadian dollar hit a 12-year low in January - helping to boost non-resource exports and offset the shock of tumbling oil prices - but has strengthened 14 percent since then.

The Bank of Canada is expected to bump up its forecast for economic growth in 2016 from the anemic 1.4 percent forecast in January to closer to 2.0 percent, said Mark Chandler, head of Canadian fixed income and currency strategy at RBC Capital Markets.

But even as it projects stronger growth at home, it should point to global risks and signs of weakness in the United States, said David Rosenberg, chief economist & strategist at Gluskin Sheff & Associates.

"They can't ignore the fact that the U.S. economy has slowed to stall speed after what was already tepid growth in the fourth quarter," said Rosenberg.   Continued...