07:53 AM EDT, 06/17/2024 (MT Newswires) -- BMO Economics in its morning note said last week's rally, fuelled by "encouraging" CPI progress in the U.S., boosted rate cut expectations in Canada as well. As much as the Bank of Canada downplayed the need to be wary of its divergence with the Fed, better odds of Stateside cuts inevitably bolster the case for easing north of the border, BMO added. For now, it noted, the loonie was little changed around $1.375.

This morning, BMO noted, we'll get some indicators of May's housing activity with housing starts (8:15 am) and the existing home sales report (9:00 am). According to BMO, resale activity "remained broadly subdued" in May, as would-be buyers stayed on the sidelines anticipating rate cuts. BMO is expecting sales fell 9% from "robust" year-ago levels, with the latter "juiced" by the Bank of Canada's short-lived pause in rate hikes. BMO said the resale housing market is poised to rebound in the second half of the year as mortgage rates fall. However, it is not expecting a significant rally as: rates remain higher than the ones locked in by existing mortgage holders, keeping affordability challenged; and, new home completions have risen and are expected to trend higher in the medium term, boosted by a construction sector running at full capacity.

On Wednesday, BMO also noted, the BoC will publish the Summary of Deliberations from this month's meeting, which kicked off the rate cut cycle. Ben Reitzes noted, BMO expects the tone to lean dovish. BMO will be looking for additional colour on Governor Macklem's comments that indicated there was still room for the BoC to diverge from the Fed, and his general lack of concern on the impact of the divergence on the loonie.

BMO noted the last major release this week will be April's retail sales, on Friday. The bank is looking for headline spending to rebound 1% following three straight months of declines. It said the gain was likely supported by higher gas prices and auto sales, with the latter indicating that sales ex-autos rose a smaller, but still sizeable, 0.5%. BMO will be watching sales volumes for signs of underlying momentum in consumer spending.

BMO also noted that StatCan will be releasing updated basket weights for the CPI on Tuesday. The May CPI report will be out next week accounting for this update. This will be the first of two reports before the BoC's July meeting.

And we'll get another inflation-related indicator on Thursday, with May's new home price index. The yearly decline is expected to widen a tick, indicating additional cooling for shelter costs in the June CPI, BMO said.