The Bank of Canada rate cut is widely anticipated for the third consecutive meeting today. As outlined in our BoC preview, we expect the policy rate to be reduced from 4.50% to 4.25%, aligning with consensus and market expectations. Since the Bank won’t be issuing a new set of economic forecasts at this meeting, market attention will be focused on the forward-looking language in the accompanying statement and press conference, as noted by ING’s FX strategist Francesco Pesole.
Risks Appear Balanced Given Market Expectations
“During the Bank of Canada rate cut in July, Governor Tiff Macklem adopted a generally dovish stance, emphasizing a shift in focus towards economic growth over inflation and indicating that further cuts were likely. Since then, Canada has experienced a soft employment report (-3k in July), slower wage growth, and notably, a further decline in all key inflation metrics, both headline and core. These measures now range between 2.4% and 2.7%, well within the BoC’s 1-3% target range.”
“We anticipate that Macklem will reaffirm it is ‘reasonable’ to expect additional easing by year-end, effectively supporting market expectations for the policy rate to drop to 3.75% by year-end—implying two more 25bp cuts after September. Our outlook suggests that the Bank of Canada rate cut is on a relatively predictable path towards gradually easing policy to reach the 3.0% mark by mid-2025, which aligns closely with market pricing.”
“We do not foresee significant implications for the CAD from today’s Bank of Canada rate cut decision. The risks are balanced, considering market expectations, and USD/CAD remains more influenced by U.S. developments. Greater volatility in USD/CAD could emerge on Friday with the release of both U.S. and Canadian employment data. For the time being, we continue to view USD/CAD as likely to stay within the 1.35-1.36 range, with risks slightly tilted to the upside given the external environment, which may not become much more favorable for high-beta currencies like the Canadian dollar.”
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