BOC poised for 25bps rate cut – BBH

The Bank of Canada (BOC) is expected to cut the policy rate 25bps to 2.50% after being on hold since April (2:45pm London, 9:45am New York), BBH FX analysts report.

Markets fully price easing to 2.50%

"The swaps market is pricing nearly 100% probability of cut today, followed by an additional 25bps cut by year-end to 2.25% and some odds that rates bottom at 2.00% over the next 12 months. No Monetary Policy Report is tied to this meeting. The next one is due at the October 29 meeting."

"The BOC has room to ease. Canada’s labor market backdrop is deteriorating rapidly as the economy lost -65.5k jobs in August and -40.8k in July. Importantly, upside risks to underlying inflation is not materializing. Excluding food & energy, CPI dipped to a five-month low at 2.4% y/y vs. 2.5% in July while the average of core trim and median CPI printed at 3% y/y for a third consecutive month in August."

"Bottom line: the BOC’s more dovish policy stance relative to the RBA and Norges Bank argues for further CAD underperformance against AUD and NOK."