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The Bank of Canada’s next policy decision is on May 30, but don’t expect many fireworks or big moves higher in the Canadian currency. Here are seven reasons why the bank won’t raise rates next week and why the loonie isn’t going to climb.

1. A resolution to the NAFTA file looks as elusive as ever and the negotiations are likely to linger into the second half of the year. Uncertainty over the North American free-trade agreement continues to cloud the outlook for capital spending.

2. Oil prices have provided support for the dollar, together with the narrowing in the discount on local crude. But it seems doubtful that the Saudis will want Brent prices much above current levels. The Kinder Morgan situation is as unresolved as NAFTA. ‎

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3. The 7.5-per-cent decline in copper prices year-to-date, along with the signs of peaking in most of the manufacturing survey data, call into question the veracity of this “synchronized global growth” story. And the loonie, when push comes to shove, is highly sensitive to the global economic cycle.

4. The Bank of Canada has already told us that it has found some slack in the labour market that wasn’t apparent before; that the inflation uptick is seen as temporary; and even if it isn’t temporary, the Bank is going to view moves above the 2-per-cent target as a necessary reversion to the mean for all the time inflation was below the comfort zone (the Fed is saying the exact same thing).

5. The Canadian housing market has entered into a full-blown correction, with possible large negative spillover effects to the consumer.

6. If the Bank is correct that almost half of residential mortgages refinance in the coming year, even a mild interest rate shock could exert a sizable impact on financial stress, as well as on household spending plans at the margin.

7. The divergence in corporate tax rates between Canada and the United States, as well as the move stateside to permit full-year depreciation allowance, mean that business investment in North America will be diverted to south of the border. Any company now is completely incentivized to book their revenues stateside and, as a result, the lagging Canadian GDP growth rate will be reflected in a weak Canadian dollar relative to the greenback (within a range of $1.22 to $1.32) and lower bond yields domestically compared with U.S. alternatives.

David Rosenberg is chief economist with Gluskin Sheff + Associates Inc. and author of the daily economic newsletter Breakfast with Dave.

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