Despite the recent resurgence in economic growth, we still expect the Bank of Canada to cut interest rates again, albeit not until much later this year. While widening interest rate differentials between Canada and the US would normally push the Canadian dollar lower, we expect it to drop to only US$0.75, from US$0.77 today, as slightly stronger commodity prices act as an offset. Core inflation is likely to fall from 2.0% to 1.5% by year-end, considerably weaker than the consensus view.
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