USD/CAD trades below its 200-day moving average as markets await the Bank of Canada’s rate decision. A widely expected 25bps cut to 2.25% is unlikely to mark the start of an aggressive easing cycle, with fiscal support and firm inflation arguing against deeper cuts, BBH FX analysts report.

Expect GBP underperformance versus CAD

"USD/CAD is trading heavy under its 200-day moving average (1.3952) ahead of the Bank of Canada’s (BOC) policy decision (1:45pm London, 9:45am New York). The BOC is expected to deliver a follow-up 25bps policy rate cut to 2.25% and publish a base projection in its October Monetary Policy Report for the first time since January."

"The swaps market implies 90% odds of a 25bps BOC rate cut today and roughly 50% odds of an additional 25bps cut to a low of 2.00% in the next twelve months due to the drag on Canada’s economy from ongoing US trade policy uncertainty. Last week, US President Donald Trump terminated all trade negotiations with Canada and announced plans to hike tariffs on Canadian goods by an additional 10% because of Ontario’s advertising campaign critical of the White House's tariffs."

"Nonetheless, we would fade the risk the BOC slashes the policy rate below the lower end of its estimated neutral range of 2.25% to 3.25%. Canada’s government is on track to deliver a stimulative budget on November 4, and underlying inflation is running hot. In contrast, the UK budget (scheduled for November 26) is anticipated to be a drag on the economy and leave room for the Bank of England to deliver more easing. As such, we expect further GBP underperformance versus CAD."