Canadian Dollar: BoC tightening and forecasts set to lend support – BBH

With markets pricing in an 80% chance of a 25 bps Bank of Canada rate rise to 2.50%, Brown Brothers Harriman’s Elias Haddad notes that USD/CAD remains above 1.4000 ahead of the decision. Such a move would begin a new tightening cycle. Following stronger-than-expected Consumer Price Index (CPI) and growth readings, the bank is likely to revise up its inflation and real Gross Domestic Product (GDP) forecasts. Those revisions would support the Canadian Dollar and bolster expectations of additional rate rises.

BoC rate rise and forecast revisions come into focus

"USD/CAD is holding above key support at 1.4000 ahead of the Bank of Canada (BoC) policy decision and Monetary Policy Report (1:45pm London, 9:45am New York)."

"The BoC will likely raise its inflation and real GDP forecast, which can underpin CAD. September headline CPI printed at 3.1% y/y, exceeding the bank’s 2.5% Q3 projection, while Q2 real GDP grew 3.3% annualized vs. the bank’s 2.5% projection."

"The average of CPI trim and median was 1.85% y/y in September, tracking just below the BoC’s 2.0% Q3 projection. But the pick-up in firm’s one- and two-year inflation expectations could lift the core CPI outlook, reinforcing the case for further hikes."

"The BoC is expected to start tightening with a 25bps hike to 2.50% (80% priced in), after holding rates steady since December 2025. BoC Governor Tiff Macklem’s warned recently that “the risk that inflation broadens and becomes more persistent has gone up”."

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