Bank of Canada's Monetary Hold Signals Balancing Risks From Oil Prices and Trade, Says TD

The Bank of Canada held its policy rate at 2.25% on Wednesday, noting that maintaining the current setting balances the competing risks of economic weakness and rising inflation, said TD.

The opening statement pointed to the weaker growth backdrop. It noted that "GDP edged down 0.1% in the first quarter, weaker than expected at the time of the April Report," with the economy expected to "remain in excess supply" despite an anticipated near-term rebound, as higher energy prices, global conflict, and trade uncertainty weigh on activity.

The statement also pointed out that oil prices have been higher than assumed in April's Monetary Policy Report, likely nudging up the inflation outlook.

Importantly, in the Opening Statement, the BoC emphasized policy flexibility, noting that "uncertainty is unusually elevated, and the risks could shift," with the Governing Council prepared to adjust as needed. It stated it could cut rates if United States trade restrictions weaken growth or potentially deliver "consecutive increases" if Middle East-related energy shocks lead to persistent, broad-based inflation.

Another meeting, another hold, added TD. Growth to start the year came in materially lower than the BoC's last projections, showcasing just how much slack there is in the economy. This slack is expected to continue to help offset the inflation pressures coming from higher energy costs.

Whether it is sufficient to prevent broader pass-through to core prices is likely to depend on just how long oil prices stay elevated.

The outlook remains highly uncertain. Oil prices have come off their peaks but are still high as uncertainty about the course of the conflict in the Middle East persists. On the other hand, negotiations around the CUSMA review between Canada and the U.S. have yet to get started, casting a pall over trade prospects, according to the bank.

Recent data suggest a Q2 bounce-back in growth, but one that is insufficient to absorb all of the excess capacity in the economy. Given the competing forces on inflation, TD expects Canada's central bank to stay on hold through the balance of the year.

Keel Infrastructure Closes Convertible Notes Offering

Keel Infrastructure (KEEL) said late Tuesday it has closed its offering of $458 million of $1.25 convertible senior notes due 2032, including the full exercise of an over-allotment option.Net proceeds will be used to cover the cost of capped calls and for general corporate purposes, the company said.

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TSX Closer: Index Falls As Oil Slump Weighs On Energy Shares Ahead Of BoC Interest-Rate Decision

The Toronto Stock Exchange slumped Tuesday as a sharp decline in oil prices weighed on energy shares, while investors assessed mixed economic data, a wider Canadian trade surplus and the outlook for the Bank of Canada's interest-rate decision coming tomorrow.The S&P/TSX Composite Index closed down 67.05 points, or 0.19%, to 34,411.69, with sectors mixed over Tuesday's session.Energy led decliners, down 3.13%, while Health Care, Information and Technology, and the Base Metals were down 0.60%, 1.17%, and 0.54%, respectively. Battery Metals Index led gainers, up 1.53%, with Financial, up 0.97%, Utilities, up 0.32%, Industrials, up 0.35%, and Telecom, up 0.45%.In commodities, gold fell to at a six-month low on Tuesday even as the dollar weakened. The precious metal for July delivery was last seen down US$74.00 to US$4.289.40 per ounce, the lowest since Dec. 10. The price of the metal has dropped 7.7% over the past month as investors turn to the dollar to hedge against the threat of higher interest rates as inflation rises due to the high oil prices that have followed the U.S. war on Iran.Meanwhile in oil, West Texas Intermediate (WTI) crude oil fell 3.4% on Tuesday on calming tensions in the Middle East as Iran and Israel ended their missile attacks and U.S. President Trump said negotiations to end the war on Iran and reopen the Strait of Hormuz are in their "final throes". WTI crude oil for July delivery closed down US$3.10 to settle at US$88.20 per barrel, while August Brent oil was last seen down US$2.82 to US$91.43.On the economic front, Statistics Canada reported Canada's merchandise trade surplus with the world widened in April as exports outpaced imports. It widened to $2.7 billion in April from $1.8 billion in March, as exports rose 1.6% month over month, while imports edged up 0.3% month over month, said the country's statistical agency on Tuesday. This was the second consecutive monthly trade surplus, and the largest since January 2025, wrote Statistics Canada in a statement.The April surplus was roughly in line with a $2.50-billion consensus surplus provided by MUFG. Exports of energy products rose 9.7% month over month in April. This followed an increase of 23.4% in March. Both monthly increases were driven by higher prices, which continued to rise in April amid the uncertainty caused by the conflict in Iran, the agency added.The country's expanding trade surplus is helped not only by higher oil prices but also by an increase in export volumes, said CIBC. Total exports rose by 1.6% month over month, driven by energy products, food and autos. Export growth would have been stronger were it not for a pullback in the volatile gold trade, stated CIBC. Excluding the two volatile areas of energy and metal/non-metallic minerals, exports were up by 5.1% and total exports saw another solid increase in volume terms.Total imports edged up slightly in both nominal and volume terms. The solid increase in export volumes is positive for monthly and quarterly gross domestic product, although the strong advance estimate for April GDP will likely have already included most, if not all, of that information, added CIBC. The further gain in export volumes at the start of Q2, following a solid rise in March, will mean that net trade should be a positive for quarterly GDP and support a rebound in economic activity following two marginal contractions, the lender added.Recent trade data suggested that Canadian exports have largely recovered to pre-2025 levels, although still with some weakness in sectors hit hardest by United States tariffs. However, with tariff uncertainty remaining as CUSMA renegotiations drag on, further upward momentum will likely be limited in the near-term, CIBC noted.Looking ahead to monetary policy, Rosenberg Research said the Bank of Canada is expected to leave interest rates unchanged at 2.25% during Wednesday's policy meeting, with markets continuing to price in one 25 basis points rate hike before year-end.Besides the Canadian dollar) has been the weakest reserve currency in recent weeks, as Canada's deteriorating real growth profile, unfavorable Canada-United States two-year spreads, and declining bullion prices weigh on the currency, said National Bank of Canada. Full-time employment at a record high makes it hard to call Canada a recession story, but a sustained Canadian dollar rally will likely require Ottawa to secure a trade accord with the United States this summer, pointed out the bank.Meanwhile, fresh industry data pointed to continued softness in consumer demand, with Canadian vehicle sales remaining below year-ago levels. Canadian auto sales fell 0.6% month over month to 1.89 million units at a seasonally adjusted annualized rate in May, based on data from Omdia, said Scotiabank.The monthly selling rate has trended in the 1.85 million to 1.9 million annualized range since February, an improvement from the three months to January when sales averaged 1.75 million to 1.8 million but still below the two-million rate a year ago.

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Bank of Canada's Monetary Hold Signals Balancing Risks From Oil Prices and Trade, Says TD

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