Carney expected to be welcomed with a Bank of Canada rate cut

Former Bank of Canad and Bank of England Governor Mark Carney was selected a leader of the Canadian Liberal party yesterday in a landslide vote. That means he will soon take over for Prime Minister Justin Trudeau.

Carney hinted at what will happen as he takes the role: A bill will be passed to eliminate the consumer carbon tax (while leaving the industrial tax in place) and the capital gains hike will be cancelled (this doesn’t take legislation as it was never implemented).

He can’t actually sit in parliament so he’s in an awkward position and an untenable one. He’s also entered something of a honeymoon period and Liberals are polling much better than a few months ago. Conservatives had anchored there entire campaign as anti-Trudeau and anti-carbon tax and these two moves have dulled their blades and their chances.

Conservatives still lead in the polls but it’s far closer and I expect Carney to use whatever momentum he has and call an election in the next few weeks. Parliament is prorogued until March 24 so I suspect it will be called by month end, followed by a 6-8 week campaign.

If, for some reason, Carney tries to hold onto power without an election, then it can’t be delayed beyond October.

As for this week in Canada, the market is pricing in an 86% chance of a Bank of Canada rate cut to 2.75%. The data has held up ok in Canada but inflation is back at target and there are serious worries about the impacts of tariffs and the uncertainty about a trade war.

This article was written by Adam Button at www.forexlive.com.