07:43 AM EDT, 09/05/2024 (MT Newswires) -- There was big news in Canada on Wednesday and the Bank of Canada (BoC) decision too, noted Bank of Montreal (BMO).

The left-leaning NDP gave word that it won't continue with its agreement to support the minority Liberal government, opening up the possibility of an early federal parliamentary election, said the bank. The current agreement was to run until June 2025, ahead of an election by October 2025, but the door is open now for any confidence vote to bring down the government and send Canada to the polls.

That doesn't necessarily mean the country is headed to an election immediately -- the Bloc Quebecois, for example, holds 32 seats to the NDP's 24. But suffice it to say that political certainty is now gone, and an early election is entirely possible, stated BMO. The reality is that the NDP probably wants to distance itself from the Liberals, who have (both) been sliding in the polls. The Conservatives are currently polling well in majority territory and want an election. The Liberals and NDP are both poised to lose seats, while the BQ looks about stable.

The House of Commons will sit again on Sept. 16 and there will be two closely-watched by-elections that day in Montreal and Winnipeg, added the bank.

Wednesday's BoC decision came and went without any major surprises, according to BMO. Canada's central bank cut interest rates by 25 bps to 4.25% as widely expected, and said that "if inflation continues to ease broadly in line with our July forecast, it is reasonable to expect further cuts in our policy rate."

That remains the bank's view, as it looks for the BoC to cut rates to 3.5% by January, and then to 3.0% by next June, but the risks tilt to the BoC going faster than that, and potentially further-especially as it shows concern about growth getting too weak and inflation falling below target. Market pricing was largely steady yesterday.

Investors will get productivity data for Q2 at 8:30 a.m. ET on Thursday. BMO isn't looking to be inspired by the data. Labor productivity was likely flat in the quarter, which would leave it down from a year ago. Canada has seen no labor productivity growth now over the past five years while that in the United States has grown at a 1.8% annual pace.

The Canadian dollar (CAD or loonie) is steady at $1.352/USD (74 US cents) and has stabilized with the US Federal Reserve widely expected to soon join the BoC-led rate-cut parade, added the bank.