Next week promises a solid lineup of economic data in Canada, highlighted by the Bank of Canada’s interest rate decision on Tuesday. The U.S. calendar is light and back-end loaded.

No one is expecting the central bank to move on rates on Tuesday, nevertheless its policy statement should be closely watched. However, economists do not expect it to signal that rates are likely heading higher later this year just yet.

“The probability of a change in rates is virtually zero,” says RBC Capital Markets. “The key for markets will be the accompanying statement. The bar to signaling even a subtle change in view is surely quite high given the contentious federal election campaign underway. Expect no such signal.”

CIBC World Markets says that the feature story next week will be the Bank of Canada. “It had already anticipated an acceleration in growth in its last outlook, and while it will revise headline CPI higher on firm oil prices, it will still see core inflation remaining below target. That makes a rate hike premature, and even an outright tightening bias in doubt,” it says. “But with so much momentum in employment, we expect at least some cautionary words about the need to begin to withdraw stimulus well ahead of the output gap closing later next year. That could lay the ground for the Bank to match either the second or third Fed hike.”

“It’s probably too soon to look for heavy-duty hints along those lines in next week’s press release, although the Bank is likely to acknowledge that inflation will be higher than earlier expected,” says BMO Nesbitt Burns. “Next week’s statement will reinforce the message that policy is currently in neutral. We believe that the Bank will gradually begin to shift their rhetoric over the summer, setting the stage for a fall tightening move.”

There are two numbers out before the Bank makes its rate decision. Building permits are reported on Monday, followed by housing starts on Tuesday.

On Thursday, capacity utilization numbers are report, followed by merchandise trade on Friday. “An energy-fueled trade surplus will remain highly supportive for the dollar, while housing starts are still capturing the tail end of interest stimulus,” CIBC says.

“Amid a wave of mid-tier economic data next week, Friday’s trade report is probably the most important,” Nesbitt says. “Exports have been strong in each of the past two trade releases, and they should get another lift in April from rising industrial prices. While imports are also expected to ramp up again, the trade surplus is likely to remain elevated at around $6 billion, up from last year’s average of $5 billion.”

RBC expects capacity utilization to remain unchanged. It says that capacity utilisation should remain slightly above its longer-term average, “far ‘tighter’ than the comparable US measure and tending to support the view that the Bank will need to be normalizing rates sooner rather than later.” It forecasts a bullish bond market reaction upon a result under 82.5%; vice versa above 83.5%.

Stateside

In the U.S., a couple of speeches by Fed chairman Alan Greenspan will be the only real feature for the first four days on the week. The producer price index data is out on Friday, along with the trade balance and Michigan sentiment index.

However, the biggest news of the week may be oil prices, economists say. “Equities seem to have decided to trade in negative correlation to day-to-day movements in crude oil prices, which are in turn resting on a cloudy picture on how much oil OPEC can really deliver,” CIBC says.

Nesbitt says the impact of rising crude oil and gasoline prices will be a common theme among several of the week’s U.S. data releases. It expects the producer price index to increase 0.6%, fueled mostly by energy goods. Excluding food and energy, the core PPI is expected to increase 0.2%. “Clearly, the stage is being set for acceleration in core PPI inflation during the months ahead. And, it might be only a matter of time before these factory price pressures flow further downstream to wholesale and, eventually, retail prices. The Fed will obviously want to nip this one in the bud,” it says.

Nesbitt also says that a mounting oil import bill will likely act to keep April’s trade balance close to the record deficit of $46 billion registered in March. “Finally, on Friday, we look for the University of Michigan consumer sentiment index to hold relatively steady in June, as the confidence boost provided by strong employment gains is partially offset by worries around rising gasoline prices, the move up in mortgage rates, and heightening terrorism risks.”