Bank of Canada to Watch Oil Prices More Than GDP, Manulife Says

what happened

According to Market Talk, the Bank of Canada will focus more on the trajectory of crude oil prices than on domestic GDP when setting interest rates in the near term. The view comes from Dominique Lapointe, senior director of macro strategy at Manulife Investment Management.

Statistics Canada data show GDP stalled in August and is expected to decline in September. Third-quarter GDP is nonetheless on track for a 1.3% annualized gain. Lapointe notes that monthly GDP, which is measured by output, often diverges sharply from quarterly GDP, which captures spending and investment.

He says the central bank made clear this week that energy prices and their effect on inflation will drive rate policy. As a result, he still expects rate hikes in December and March 2027.

why it matters

For markets, the inflation risk tied to oil could outweigh signs of economic weakness. Expectations of tighter policy typically support the Canadian dollar and weigh on bonds, so oil price moves are likely to be a key driver for CAD and Canadian government bonds.

market impact

Canadian dollar and bonds: expected rate hikes and oil prices set the direction

tags

instruments