USD/CAD steadies below its 200-day moving average near 1.3950, following the Bank of Canada’s (BOC) 25-basis-point policy rate cut to 2.25%, according to BBH FX analysts. Despite the cut, the central bank struck a cautious tone, emphasizing a soft labour market and uncertainty from US trade, while suggesting further easing is unlikely.
The BOC noted that Canada’s economy has been weighed down by weak labour conditions and US trade tensions. However, it signaled that it will maintain the policy rate at 2.25% provided inflation and economic activity evolve broadly in line with its projections. The bank expects real GDP growth to average 0.75% SAAR in H2, up from 0.2% in H1, and projects core inflation to ease to 2.9% y/y in Q4 from 3.2% in Q3.
Analysts highlight that the BOC is unlikely to cut rates below its neutral range of 2.25%–3.25%, supporting the Canadian Dollar. Further, expectations of a stimulative Canadian budget on November 4 and persistently firm inflation underpin the CAD’s strength despite the recent rate cut.
