Canadian dollar calm ahead of BoC, US inflation

The Canadian dollar posted gains earlier but couldn't consolidate.  In the European session, USD/CAD is trading at 1.4439, up 0.03% on the day.

It's decision day at the Bank of Canada, which is widely expected to lower rates by 25 basis points. This would lower the cash rate to 2.75%, its lowest level since July 2022.  The BoC has been aggressive and has lowered rates at six straight meetings, chopping 200 basis points during that time.

The economy remains weak despite the sharp drop in interest rates and the central bank plans to continue lowering rates in order to boost economic growth.  The BoC finds itself in a difficult position as far as rate policy.   The labor market is showing weakness, with almost no job growth in February, while at the same time inflation remains sticky, above the BoC's 2% target.  Throw into the mix the Trump administration's tariffs on Canada, and the situation has become fluid.  The specter of a long trade war between Canada and the US would be disastrous for Canada and has complicated matters for the BoC.

In the US, inflation has been contained but remains above the Federal Reserve's target of 2%.  Headline CPI for February is expected to ease to 0.3% m/m, down from 0.5% in January, and down to 2.9% y/y from 3.0%.  The core rate is projected to drop to 0.3% m/m from 0.4% and to 3.2% from 3.3%.

If the CPI estimates prove to be on target, it would  point to little movement in inflation and investors may feel relieved that Trump's tariffs policies have not yet raised inflation.  The Federal Reserve is widely expected to hold rates at next week's meeting but it's unclear what happens after that, with the chances of a May cut at around 50/50.

• USD/CAD is testing resistance at 1.4445.  Above, there is resistance at 1.4511
• 1.4370 and 1.4304 are the next support levels