BoC´s Macklem: The era of open, rules-based trade with the US is over
Governor Tiff Macklem took questions from reporters, offering markets a clearer sense of how the central bank was thinking. His remarks followed the widely expected decision to keep the policy rate on hold at 2.25%.
BoC press conference key highlights
Canadian firms’ adjustment to US tariffs will last at least through end-2027.
The economy works less efficiently (with US tariffs). We´d be better off if we adjust.
Recent USD weakness is largely driven by geopolitical events.
People avoid further exposure to the US Dollar.
The safe haven role of the US dollar has been dented.
The Governing Council felt it was hard to assign probability to risks to the outlook.
The era of open, rules-based trade with the US is over.
Asked about the Federal Reserve:
We all need the Fed to work well.
A reduction in the Fed’s independence would particularly affect us.
Independence gives central banks space to take difficult decisions to benefit the economy.
The threat to the Fed's independence is contributing to a sense of economic uncertainty.
Powell is doing a good job.
I hope the Fed retains its independence.
This section below was published at 14:45 GMT to cover the Bank of Canada's policy announcements and the initial market reaction.
The Bank of Canada (BoC) kept its policy rate on hold at 2.25% on Wednesday, as expected. Attention now shifts to Governor Tiff Macklem’s press conference at 15:30 GMT, where markets will be listening closely for more colour on today’s decision and what might come next.
BoC policy statement key highlights
The Bank of Canada keeps the 2026 growth forecast at 1.1% and sees 1.5% growth in 2027 (vs 1.6% in the October Monetary Policy Report).
Says 2025 growth was most likely 1.7% (up from 1.2% in Oct).
Inflation is to average 2.0% in 2026 (vs. 2.1% forecast in Oct.), 2.1% in 2027 (unchanged).
Annualised Q4 growth is seen at 0.0% (vs 1.0% in Oct); Q1 2026 is predicted to be 1.8%.
The Q4 output gap is estimated in the range of -1.5% to -0.5%, unchanged from October.
Potential output growth in 2026 is seen at 1.0% (unchanged) and 1.0% in 2027 (vs 1.3%).
Potential output growth in 2025 was revised up to 2.3% from 1.6% in Oct., mainly due to historical GDP revisions.
The nominal neutral interest rate is assumed to be in a range of 2.25% to 3.25%, unchanged from October.
Market reaction
The Canadian Dollar (CAD) trades with acceptable gains on Wednesday, motivating USD/CAD to add to Tuesday’s losses and flirt with the area of 2025 lows around 1.3540 in the wake of the BoC’s interest rate decision.
Canadian Dollar Price Today
The table below shows the percentage change of Canadian Dollar (CAD) against listed major currencies today. Canadian Dollar was the strongest against the Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.46% | 0.28% | 0.23% | -0.29% | -0.02% | 0.04% | 0.57% | |
| EUR | -0.46% | -0.18% | -0.24% | -0.75% | -0.48% | -0.40% | 0.11% | |
| GBP | -0.28% | 0.18% | -0.04% | -0.53% | -0.30% | -0.24% | 0.29% | |
| JPY | -0.23% | 0.24% | 0.04% | -0.51% | -0.24% | -0.19% | 0.34% | |
| CAD | 0.29% | 0.75% | 0.53% | 0.51% | 0.27% | 0.33% | 0.86% | |
| AUD | 0.02% | 0.48% | 0.30% | 0.24% | -0.27% | 0.06% | 0.58% | |
| NZD | -0.04% | 0.40% | 0.24% | 0.19% | -0.33% | -0.06% | 0.52% | |
| CHF | -0.57% | -0.11% | -0.29% | -0.34% | -0.86% | -0.58% | -0.52% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Canadian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent CAD (base)/USD (quote).
This section below was published as a preview of the Bank of Canada's (BoC) monetary policy announcements at 10:00 GMT.
- The Bank of Canada is expected to keep its interest rate at 2.25%.
- The Canadian Dollar remains firm, dragging USD/CAD to yearly lows.
- Markets pencil in around 10 bps of hiking by the BoC this year.
The Bank of Canada (BoC) is widely expected to leave its benchmark rate unchanged at 2.25% at Wednesday’s meeting, extending the pause it signalled back in December.
At its last decision, the central bank made clear it sees policy as roughly where it needs to be to keep inflation close to the 2% target, so long as the economy behaves as expected. Still, officials were keen to underline that they’re not locked in and stand ready to respond if the outlook deteriorates or inflation risks re-emerge.
On inflation, the message remains cautiously reassuring. Headline CPI is projected to hover near the target as spare capacity in the economy helps offset cost pressures tied to trade reconfiguration. Even so, underlying inflation is still running a little hot, suggesting the disinflation process isn’t complete.
The growth picture is also uneven: Q4 GDP is expected to come in soft, with firmer domestic demand likely to be outweighed by a drag from net exports. That follows a surprisingly strong Q3, which the BoC has largely put down to trade-related volatility rather than a genuine pickup in momentum. The labour market offers a slightly brighter note, with early signs of improvement reinforcing the Bank’s wait-and-see approach.
Inflation, however, remains the key watchpoint after the headline CPI edged up to 2.4% YoY in December, while core inflation eased to 2.8% YoY. The bank’s preferred measures, CPI-Common, Trimmed and Median, also ticked lower, but at 2.8%, 2.7% and 2.5% respectively, they remain comfortably above target.
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 overnight target unchanged at 2.25%, a decision widely expected by forecasters and OIS markets. This would mark the second consecutive hold after policymakers declared in October that policy is at ‘about the right level’ to keep inflation near target and support the economy’s transition”.
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 alongside the Monetary Policy Report (MPR), followed by a press conference with Governor Tiff Macklem at 15:30 GMT.
Markets anticipate the central bank will maintain its current stance, with a projected tightening of approximately 10 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 its yearly lows past the 1.3900 barrier recorded earlier in the month. He adds: “Indeed, USD/CAD has recently broken below the 1.3700 support to hit new 2026 lows, exposing a potential test of the December 2025 floor at 1.3642 (December 26). South from here sits the weekly trought at 1.3575 (July 23), ahead of the July 2025 base at 1.3556 (July 3) and the 2025 bottom at 1.3538 (June 16).”
From here, Piovano says a return of bullish momentum could prompt USD/CAD to initially reclaim its key 200-day SMA at 1.3833 prior to the 2026 ceiling at 1.3928 (January 16). Up from here comes the key 1.4000 threshold seconded by the November top at 1.4140 (November 5).
“Momentum favours extra declines,” he adds, noting that the Relative Strength Index (RSI) approaches the 33 level and the Average Directional Index (ADX) near 27 is indicative of a pretty firm trend.
Bank of Canada FAQs
The Bank of Canada (BoC), based in Ottawa, is the institution that sets interest rates and manages monetary policy for Canada. It does so at eight scheduled meetings a year and ad hoc emergency meetings that are held as required. The BoC primary mandate is to maintain price stability, which means keeping inflation at between 1-3%. Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Canadian Dollar (CAD) and vice versa. Other tools used include quantitative easing and tightening.
In extreme situations, the Bank of Canada can enact a policy tool called Quantitative Easing. QE is the process by which the BoC prints Canadian Dollars for the purpose of buying assets – usually government or corporate bonds – from financial institutions. QE usually results in a weaker CAD. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The Bank of Canada used the measure during the Great Financial Crisis of 2009-11 when credit froze after banks lost faith in each other’s ability to repay debts.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Bank of Canada purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the BoC stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Canadian Dollar.
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.
Author
FXStreet Team
FXStreet
