Michael Pfister at Commerzbank notes the Bank of Canada (BoC) kept rates at 2.25% and sees little impetus for near-term tightening given easing core inflation and a weak real economy. Market pricing now reflects only one hike by December. He argues monetary-policy pressure on the Canadian Dollar (CAD) should ease, leaving USD/CAD direction dependent on broader US Dollar moves.

BoC caution weighs on Canadian Dollar

"As expected, the Bank of Canada (BoC) kept its key interest rate at 2.25% yesterday. At the same time, policymakers gave little indication that this might change in the near future."

"We have argued for some time that, if at all, the BoC's first interest rate hike is unlikely to take place until December. The latest figures, however, now suggest that it might come even later, although there is still plenty of time until then."

"Market expectations have shifted in this direction in recent weeks too, with only one rate hike currently priced in by December. Pressure on the Canadian dollar from monetary policy is likely to ease somewhat accordingly."

"With the USMCA negotiations approaching and the real economy weakening, as well as political concerns, there are nevertheless still many problems. Those anticipating lower USD/CAD levels should therefore continue to hope for a weaker US dollar."

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