This afternoon, the Bank of Canada will begin this week's series of four G10 central bank meetings. Just under two weeks ago, the market began to anticipate another rate cut of 25 basis points, and is now consistently factoring this in with an estimated probability of around 80%. To be honest, we are not quite as certain as the market, Commerzbank's commodity analyst Carsten Fritsch notes.

December meeting might be a more appropriate time for a cut

"While inflation is still within range, it has recently exceeded expectations. An increase in the headline year-on-year rate was expected, partly due to base effects. Ultimately, however, it was 0.2 percentage points higher than expected, and the core rate also increased. With the current key interest rate standing at 2.5% and the headline rate at 2.4% year-on-year, another interest rate cut would represent a (further) step into expansionary territory."

"The labour market has been cooling for several months, but it has also been very volatile recently. Admittedly, BoC Governor Tiff Macklem viewed the surprisingly strong job growth in September as an outlier, a view with which we agree. However, cutting interest rates in a month when both inflation and the labour market exceeded expectations would send a strong dovish signal. Added to this are the new concerns about US tariffs. There was an escalation, including a 10 percentage point increase in tariffs. Although it is still unclear which goods will be affected, the uncertainties provide another argument for a wait-and-see approach."

"We generally expect another interest rate cut this year. However, we think that the December meeting would be a more appropriate time for this. By then, it may be clearer whether the September figures were an outlier and how relations with the US will develop. This is a non-consensus view; almost three-quarters of economists surveyed by Bloomberg expect an interest rate cut. Nevertheless, if this cut does not happen, the CAD could benefit somewhat in the short term, even though the fundamental factors continue to suggest otherwise in the medium term."

(This story was corrected on October 29 at 09:04 GMT to say USD/CAD in the headline, not USD/CSD.)