As expected, the Bank of Canada (BoC) cut interest rates again yesterday by 25 basis points to 4.50%. At the same time, it was made clear that further rate cuts are likely to follow, Commerzbank FX strategist Michael Pfister notes.
CAD set to remain under pressure in the coming months
“BoC Governor Tiff Macklem stated that decisions would be made ‘one at a time’, meaning that there is no predetermined path of rate cuts. However, he also stressed that it was reasonable to expect further rate cuts. And with the year-on-year inflation rate likely to reach a value close to target in the next two months due to base effects, there is little to argue against further rate cuts.”
“Unless inflation unexpectedly picks up significantly, another rate cut in early September is likely to remain the baseline scenario. The general impression was that the BoC was shifting its focus from inflation to growth concerns.”
“Accordingly, the growth forecasts for 2024 and 2025 were lowered again. As a result, there is much to suggest that the Canadian Dollar (CAD) will remain under pressure in the coming months: after all, the BoC is likely to cut rates further and the real economy will benefit from the rate cuts only with a time lag. We therefore maintain our forecast of a weaker CAD through to the end of the year.”
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