07:51 AM EDT, 10/16/2024 (MT Newswires) -- Following Tuesday's softer September inflation report in Canada, Bank of Montreal (BMO) is now calling for a 50 bps cut to 3.75% at next week's Bank of Canada policy announcement.

Inflation has come in below the BoC's forecast for a second straight quarter and Q3 gross domestic product is tracking well below the BoC's forecast, setting the stage for 50 bps, noted the bank.

While BMO is anticipating a more aggressive move later this month, it continues to look for 25 bps cuts afterward until policy rates get to 2.50%. The risks are skewed toward a more aggressive path, but that would take a continued deterioration in the data.

In Canada on Wednesday, investors will get September housing starts at 8:15 a.m. ET. The bank is looking for starts to rebound 15% to 250,000 units annualized, reversing much of the prior month's 22.3% plunge. Its call is almost bang on the year-to-date and 12-month average.

Next up at 8:30 a.m. ET Wednesday, August manufacturing sales will be released and are expected to fall 1.5% month over month, in line with the flash estimate. Lower energy prices likely pulled down the headline, suggesting that volumes won't be as negative, stated BMO.

The loonie continues to trade just below C$1.38, with interest rate spreads weighing on the currency, added the bank. Canada/United States Treasury two-year spreads are at their most negative -- the Government of Canada yield is below the UST yield) in nearly 20 years, it pointed out.