How are BoC rate hike bets supporting the Canadian Dollar against USD? - BBH

The Canadian Dollar is seen benefiting from a policy backdrop that points to renewed tightening by the Bank of Canada (BoC). With inflation risks rising, Brown Brothers Harriman’s (BBH) Elias Haddad expects the central bank to open a new tightening cycle by raising rates 25bps to 2.50%. Upward revisions to inflation and Gross Domestic Product (GDP) forecasts are also anticipated, while stronger data and firmer expectations bolster the case for additional rate increases.

Can BoC rate hike expectations and firmer data bolster the Canadian Dollar?

"The BoC is expected to start tightening with a 25bps hike to 2.50%, 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.” The swaps curve price in 85% odds of a hike this week."

"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 and bode well for CAD."

"The BoC is also expected to raise its inflation and real GDP forecast. 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."

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