Brown Brothers Harriman’s (BBH) Elias Haddad reports the Bank of Canada (BoC) kept its policy rate at 2.25% for a fifth consecutive meeting and signaled no urgency to hike despite two-way optionality. With markets pricing 50 bps of hikes over twelve months, Haddad judges the swaps curve too aggressive and sees risk that USD/CAD grinds up toward 1.4140.

Market pricing seen too aggressive on hikes

"Yesterday, the Bank of Canada (BOC) left the policy rate on hold at 2.25% for a fifth straight meeting. The decision was widely expected. BOC reiterated its two-way policy optionality introduced in April that new US trade restrictions on Canada would argue for cuts, but persistently high energy prices could warrant “consecutive increases in the policy rate.”"

"Nonetheless, the statement suggests the BOC is in no rush to start raising rates. BOC pointed out “the economy is expected to remain in excess supply” and “So far, there has been limited evidence of broad-based pass-through of higher energy prices to other consumer prices.”"

"Bottom line: the swaps curve is too aggressive pricing in 50bps of BOC rate hikes in the next twelve months. Risk is USD/CAD grinds up to 1.4140 (November 2025 high) as the swaps curve adjusts lower."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)