CAD: Another cut by the BoC – ING

The Bank of Canada (BoC) is widely expected to cut rates for a third consecutive meeting today. As discussed in our BoC preview, we think the policy rate will be trimmed from 4.50% to 4.25%, in line with the consensus and market pricing. The Bank won’t release a new set of economic forecasts at this meeting, so all of the market’s attention will be on the forward-looking language used in the statement and press conference, ING’s FX strategist Francesco Pesole notes.

Risks are quite balanced given market pricing

“At the BoC cut in July, Governor Tiff Macklem was generally dovish on the rate outlook, stressing a greater focus on growth over inflation, and signalling there would be more cuts ahead. Since then, Canada had a soft employment read (-3k in July), cooler wage growth, and crucially another slowdown in all key inflation measures, both headline and core. All those measures now range between 2.4% and 2.7%, so well within the BoC’s 1-3% target range.”

“We expect Macklem to reiterate it is “reasonable” to expect more easing by year-end, effectively endorsing market pricing for rates to be taken to 3.75% by year-end – i.e. another two 25bp cuts after September. Our view is that the BoC is on a relatively predictable track to gradually ease policy to reach the 3.0% mark by mid-2025. That is also broadly in line with market pricing.”

“We doubt there will be huge implications for CAD from the BoC decision today. The risks are quite balanced given market pricing, and USD/CAD continues to be more responsive to US developments. We could see much more USD/CAD volatility on Friday when both US and Canadian jobs figures are released. For now, we continue to see USD/CAD as a 1.35-1.36 story in the near term, with risks slightly tilted to the upside as the external environment may not turn much more favourable for high-beta currencies like the loonie.”