CAD: Unchanged interest rates, focus on new forecasts – Commerzbank

FXStreet Insights Team FXStreet

At its meeting today, the Bank of Canada (BoC) is likely to leave interest rates unchanged, Commerzbank's FX analyst Michael Pfister notes.

Market is likely to anticipate further interest rate cuts

"The key interest rate has now reached the level that policymakers consider to be neutral. Meanwhile, core inflation remains significantly higher than the headline rate and is hovering around the upper end of the 2–3% target range. In addition, the latest labor market report was stronger than expected, which should ease concerns that the BoC will have to deliver further interest rate cuts for the time being."

"It will be interesting to see the new forecasts and outlook for the coming months. When the last forecasts were published in April, 'Liberation Day' was just two weeks away and discussions about a full-blown trade war were still ongoing. Since then, the US has concluded deals with several countries, while Canada has recently been threatened with a 10 percentage point increase in tariffs from 1 August."

"Although Canadian sentiment indicators have stabilized somewhat recently, this has occurred from a very low starting point. If the BoC emphasizes the risks associated with this trade conflict, the market is likely to anticipate further interest rate cuts in the coming months. This would weigh on the CAD."

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