When Doves Cry

“Don't make me chase you / Even doves have pride” – Prince, from the album Purple Rain.

Bank of Canada Governor Stephen Poloz has been notably hawkish this year, refusing to lower rates despite that being the trend among major central bank. That may be changing. After the meeting in September, the tone from the BoC was that it would put more emphasis on Canadian data than foreign data when deciding monetary policy. Yet after the meeting last week, the Governing Council’s statement was surprisingly dovish and much more cognizant of global growth concerns. Sentences such as “Ongoing trade conflicts and uncertainty are restraining business investment, trade, and global growth…” and “the resilience of Canada’s economy will be increasingly tested as trade conflicts and uncertainty persist…the Bank will be monitoring the extent to which the global slowdown spreads.” stood out, in our view. Even the strength of the Loonie made an appearance on the statement, suggesting that the Bank is considering a cut to counteract it. 


Traders reacted to the statement as they often do – that is to say, quickly and on emotion. Yields in Canada tumbled after the announcement and continued falling the next day, and market-implied chances of a rate cut at the next meeting went from 13% before the announcement to as much as 33% the next day. Yet reason eventually prevailed. By November 5th, that rate decrease was nearly erased, and the odds of another cut by year end were basically back to where they started. So despite the more dovish tilt by Mr. Poloz this time around, we still believe that at least for the near futures, there’s a greater chance of rates trending upward. If we’re right, we’ll see what it sounds like when doves cry. 


Jean-Guy Mérette

Vice President and Portfolio Manager
Active and Strategic Fixed Income Team