As widely expected, BoC delivered a 25bp rate cut, bringing its policy rate to 2.75%, Danske Bank's FX analysts Kristoffer Kjær Lomholt and Filip Andersson report.
Potential easing of US tariffs can act as a CAD-positive
"The meeting was rather uneventful, with the BoC naturally focusing strongly on the uncertainty and impact related to a trade war with the US, resulting in a limited market reaction. The BoC also released survey data, indicating that threats of new tariffs and uncertainty about the trade war are already taking their toll on consumer and business confidence."
"Governor Macklem cautioned that 'monetary policy cannot offset the impacts of a trade war', warning that the severity of new US tariffs on Canada will hinge on their magnitude and duration."
"We continue to expect USD/CAD to trend down towards the 1.41 level in the short-term amid a backdrop of current short-stretched CAD positioning and further USD weakening, while a potential easing of US tariffs imposed on Canada would act as a CAD-positive."
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