BoC set to keep interest rate unchanged as markets seek clues of a hawkish shift in 2026
|- The Bank of Canada is expected to keep its interest rate at 2.25%.
- The Canadian Dollar remains firm, dragging USD/CAD to multi-week lows.
- The BoC reduced its policy rate by a quarter-point in late October.
- The BoC could start hiking rates by mid-2026.
The Bank of Canada (BoC) is widely expected to maintain its benchmark interest rate at 2.25% at its meeting on Wednesday. That would follow two consecutive quarter-point rate cuts in September and October.
Indeed, the central bank trimmed its benchmark rate by 25 basis points in late October, exactly what everyone was expecting.
Furthermore, policymakers signalled they’re pretty comfortable with where rates are now: low enough to support the economy as it adjusts to the fallout from the US-driven trade tensions, but still tight enough to keep inflation hovering around target.
The issue of inflation continues to persist: Headline CPI deflated to 2.2% YoY in October, while the core CPI climbed to 2.9%. The BoC’s preferred measures, Common, Trimmed, and Median CPI, eased a tad, although they remain comfortably above the target at 2.7%, 3.0%, and 2.9%, respectively.
Previewing the BoC’s interest rate decision, analysts at the National Bank of Canada (NBC) noted, “The Bank of Canada is set to leave its policy rate unchanged at 2.25%, after declaring in October that it is ‘at about the right level’ to keep inflation near target and help the economy through a structural adjustment.”
When will the BoC release its monetary policy decision, and how could it affect USD/CAD?
The Bank of Canada will announce its policy decision on Wednesday at 14:45 GMT, followed by a press conference with Governor Tiff Macklem at 15:30 GMT.
Markets anticipate the central bank to maintain its current stance, with a projected tightening of approximately 33 basis points by the end of 2026.
Pablo Piovano, Senior Analyst at FXStreet, points out that the CAD has been appreciating steadily against the Greenback since the November lows north of 1.4100, sending USD/CAD back to the 1.3800 neighbourhood. He also notes that the technical setup still leans toward further losses if spot keeps the trade below its key 200-day SMA at 1.3904.
From here, Piovano says a return of bullish momentum could send USD/CAD up to test the November high at 1.4140 (November 5), and if that breaks, the next target would be the April ceiling at 1.4414 (April 1).
On the other hand, he highlights initial support at the December base of 1.3799 (December 8), seconded by the September floor at 1.3726 (September 17) and the July valley at 1.3556 (July 3).
“Momentum favours extra declines,” he adds, noting that the Relative Strength Index (RSI) is hovering below the 36 level and the Average Directional Index (ADX) above 26, which hints that the current trend is gathering steam at a firm pace.
Economic Indicator
BoC Monetary Policy Statement
At each of the Bank of Canada (BoC) eight meetings, the Governing Council releases a post-meeting statement explaining its policy decision. The statement may influence the volatility of the Canadian Dollar (CAD) and determine a short-term positive or negative trend. A hawkish view is considered bullish for CAD, whereas a dovish view is considered bearish.
Read more.Last release: Wed Oct 29, 2025 13:45
Frequency: Irregular
Actual: -
Consensus: -
Previous: -
Source: Bank of Canada
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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