BoC Preview: Macklem to Hold at 2.25% Amidst Trade Anxiety

The Bank of Canada (BoC) is set to announce its interest rate decision today at 14:45 GMT, with markets universally pricing in a hold at 2.25%. With the Canadian economy showing signs of “invisible weakness”—slowing growth masked by population inflows—Governor Tiff Macklem must navigate a narrow path between stimulating the domestic economy and defending the CAD.

The Data Picture

• Inflation: Core inflation trimmed mean dropped to 2.7%, signaling price pressures are easing.
• Employment: Unemployment ticked up to 6.8%, indicating slack in the labor market.

Under normal circumstances, this data might invite a cut. However, the BoC is handcuffed by the Federal Reserve's higher-for-longer stance and the political volatility emanating from Washington.

The Trump Trade Factor

The looming threat of aggressive US tariffs and the renegotiation of the USMCA trade agreement are significant headwinds for the export-dependent Canadian economy. A premature rate cut could widen the yield spread with the US, punishing the CAD further and importing inflation.

Trading the USD/CAD

• The Baseline: A “Hawkish Hold.” The BoC keeps rates steady and emphasizes patience, likely supporting USD/CAD near the 1.3550 support zone.
• The Risk: If the BoC lowers its “neutral rate” estimate in the accompanying Monetary Policy Report, it would be interpreted as a dovish signal. This could trigger a breakout in USD/CAD back toward 1.3700.

Analyst View: Commerzbank notes that while rate stability is the immediate outlook, the medium-term bias remains tilted toward easing if domestic consumption cracks further. For today, expect the Loonie to take its cues more from the Fed's guidance later in the day than the BoC's widely anticipated pause.