USD/CAD unmoved by Bank of Canada rate cut

The Canadian dollar is almost unchanged on Wednesday, after the Bank of Canada cut rates at today’s meeting. In the North American session, USD/CAD is trading at 1.3778, up 0.05% on the day at the time of writing.

Bank of Canada lower rates

The Bank of Canada lowered rates by 25 basis points, bringing the key interest rate to 4.50%. The markets had priced in a rate cut at close to 90%, so the move was widely expected and the Canadian dollar has shown almost no reaction.

The BoC has now lowered rates in two straight meetings, as economic data has supported a shift in policy. Headline and core CPI have fallen within the 1-3% target band and monthly CPI posted its first decline since December 2023. The central bank expects the downtrend in inflation to continue in the second half of the year and that inflation will fall to the 2% by 2025. As well, the unemployment rate has risen to 6.4%, up from 5.7% in January. The labor market has performed well under the weight of steep interest rates but is showing cracks.

BoC Governor Macklem said after the meeting that if inflation continues to fall as the Bank expects, “it is reasonable to expect further cuts in our policy interest rate”. This is a strong signal that further rate cuts are coming, barring any unpleasant surprises from inflation.

There is still more work for the BoC to do, but it is unlikely to cut rates again before the Federal Reserve does so, as further widening of the US/Canada rate differential will weaken the Canadian dollar. The markets have priced in a Fed cut in September at above 90%.
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USD/CAD Technical

USD/CAD has support at 1.3774 and 1.3703
There is resistance at 1.3820 and 1.3891

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