Commerzbank’s Michael Pfister notes that the Bank of Canada (BoC) has kept interest rates at 2.25% and sees little impetus for tighter monetary policy in the near future given falling core inflation and a feeble real economy. Market prices currently reflect only one raise through December. He argues that monetary policy pressure on the Canadian dollar (CAD) should ease, leaving the direction of USD/CAD dependent on broader US dollar movements.
The BoC warning weighs on the Canadian dollar
“As expected, the Bank of Canada (BoC) kept its key interest rate at 2.25% yesterday. At the same time, policymakers gave no indication that this might change in the near future.”
“We have argued for some time that the BoC’s first rate hike, if at all, would not happen before December. But the latest data suggests it could come even later, although there is still plenty of time before then.”
“Market expectations have also moved in this direction in recent weeks, with only one interest rate increase now priced in for December. Monetary policy pressure on the Canadian dollar is likely to moderate somewhat accordingly.”
“With USMCA negotiations approaching and the real economy weakening, as well as political concerns, many issues remain. Those expecting lower USD/CAD levels should therefore continue to hope for a weaker US dollar.”
(This article was created with the aid of an artificial intelligence tool and has been reviewed by an editor.)
