Bank of Canada Poised to Maintain Rates as Inflation Shows Signs of Moderating

The Bank of Canada (BoC) is widely expected to leave its policy rate steady at 2.25% on Wednesday, marking the sixth consecutive meeting without a change.

At its previous gathering, the central bank held rates as anticipated. The accompanying statement and Governor Tiff Macklem’s press conference underscored a patient stance, with policymakers weighing persistent inflation risks against an economy still operating with excess supply.

The BoC projects inflation will hover near 3% in the near term before gradually returning to the 2% target. Officials also reiterated they are largely looking past the impact of Middle East tensions on headline inflation, citing limited evidence that higher energy costs are broadly feeding into consumer prices.

While the governing council stressed it would not permit higher energy costs to entrench inflation, it offered little signal that a policy response is imminent. Rate-setters also pointed to a likely growth rebound in the second quarter, though they cautioned that economic activity remains weak and uncertainty surrounding U.S. trade policy persists.

During his press conference, Governor Macklem emphasized that any future policy move will depend on evolving economic conditions rather than a predetermined timeline. He noted core inflation has edged lower, reiterated that economic slack continues to weigh on prices, and argued that little has changed since the last meeting, with incoming data broadly evolving as expected.

Inflation remains the key focal point after headline CPI rose 3.2% year-over-year in May, up from 2.8% the previous month. The BoC’s core measures ticked higher to 2.2%. The bank’s preferred gauges—CPI-Common, Trimmed, and Median—came in mixed at 2.7%, 2.0%, and 2.1% respectively, but all remain above target.

When is the BoC decision due, and what are the implications for USD/CAD?

The Bank of Canada will announce its policy decision on Wednesday at 13:45 GMT, followed by a press conference with Governor Tiff Macklem at 14:30 GMT.

Markets anticipate the central bank maintaining its current stance, with pricing reflecting roughly 17 basis points of tightening by the end of 2026.

Pablo Piovano, Senior Analyst at FXStreet, notes that further gains in USD/CAD appear capped by the 1.4250 region, prompting a pullback toward multi-week lows near 1.4050.

“Should selling pressure intensify, the next relevant support lies at the provisional 55-day Simple Moving Average (SMA) near 1.3930. A break below this area exposes a move toward the critical 200-day SMA around 1.3850, closely followed by the interim 100-day SMA. A deeper, sustained retracement would then target the May floor at 1.3549,” Piovano adds.

On the upside, Piovano identifies the next hurdle at the year-to-date peak of 1.4248 (June 24–25). A break above that level could open the door to a test of the April 2025 high at 1.4414.

“Momentum favors further losses,” he notes, pointing out that the Relative Strength Index (RSI) is declining toward the 44 region, while the Average Directional Index (ADX), just above 43, suggests the underlying trend remains fairly solid.

Source link