Below is an article from The Financial Post explaining why rate hikes may be on hold until the fall…

John Morrissy, Financial Post · Mar. 21, 2011 | Last Updated: Mar. 21, 2011 2:02 PM ET

OTTAWA — Expectations for a mid-year Canadian rate hike are being pushed back by global turmoil, weak inflation and the possibility of a federal election, analysts said Monday.

“Recent global events have loosened the market’s expectations for tighter monetary policy in the advanced economies,” Camilla Sutton, chief currency strategist at Scotia Capital, said in a note to investors.

“The expectations for the Bank of Canada have undergone the most significant decline. On March 3rd, the market had priced in 95 basis points of tightening over the next 12 months (essentially four interest rate hikes); however as of today this has dropped to only 56 basis points.”

That means instead of a widely expected rate hike in early summer, the market is now looking at early fall for a rate hike to be 100% priced in, resulting from Middle East turmoil, Japan’s nuclear crisis and a multi-decade low in Canada’s core inflation, Ms. Sutton said in an interview.

The possibility of a federal election falling on the heels of Tuesday’s 2011 budget is also telling the market that Bank of Canada governor Mark Carney will remain on the sidelines in the near term, said Douglas Porter, deputy chief economist at BMO Capital Markets.

“Past election campaigns have sparked some early volatility in the Canadian dollar, which usually lasts about a day or so, and usually the Bank of Canada does its level best to stay out of the picture, making any rate move on April 12 even less likely,” Mr. Porter said, in reference to the bank’s next scheduled date for announcing the overnight rate target.

Despite the benign rate outlook, the Canadian dollar was trading sharply higher Monday, up 87 basis points to 102.28 US cents, as oil prices rose in reaction to allied air strikes and on concern that escalating turmoil may curtail Middle East shipments.

As well, said Ms. Sutton, expectations for tighter monetary policy may begin to rebuild over the next several weeks, as the initial shock of Japan’s earthquake passes and sentiment shifts to the economic benefit the country’s rebuilding could mean for commodity-rich Canada.