BOC leaves the policy rate at 2.75% for the second time – BBH

USD/CAD is breaking lower. The downward shift in US rate expectations outweighed the Bank of Canada (BOC) slightly dovish hold, BBH FX analysts report.

USD/CAD slides despite dovish lean in BOC statement

"As was largely expected, the BOC left the policy rate at 2.75% for a second consecutive time. The BOC pointed out 'there was a clear consensus to hold policy unchanged' while adding that 'the Canadian economy is softer but not sharply weaker' and 'underlying inflation could be firmer than we thought'."

"However, the BOC left the door open for more easing noting: 'On balance, members thought there could be a need for a reduction in the policy rate if the economy weakens in the face of continued US tariffs and uncertainty, and cost pressures on inflation are contained'."

"The next BOC meeting is July 30, alongside the release of its quarterly Monetary Policy Report. There was minimal reaction in the swaps curve after yesterday’s BOC policy decision. The swaps market continues to price in roughly 40% probability of a 25bps cut in July and a total of almost 50bps of easing over the next 12 months. If so, the policy rate would bottom at the lower end of the BOC’s neutral range estimate of between 2.25% to 3.25%."