The loonie tumbled more than 12% against the USD from the middle of October 2015 through the middle of January 2016 in a more or less one-way move. Import prices are rising on the back of the weaker currency, thus also sending consumer prices higher. Inflation has thus increased markedly since spring 2015 and, at 2%, is now trading exactly at the BoC's target level.
The BoC is likely to have a closer look at the government's 2016 budget plan due to be released on March 22. A budget which delivers significant fiscal stimulus to boost growth should be CAD-supportive and further reduces scope for BoC rate cuts.
Commerzbank (DE:CBKG) noted:
"Against this backdrop, the BoC will probably leave interest rates unchanged next week. However, it is likely to point to numerous downside risks such as weaker US demand and a renewed drop in oil prices, thus for now leaving the door open for further interest rate cuts."