Commerzbank's Michael Pfister points out that the Bank of Canada (BoC) maintained interest rates at 2.25% and believes there is little need for short-term tightening in light of declining core inflation and a faltering real economy. There will only be one increase in market prices by December. He contends that monetary policy pressure on the Canadian dollar (CAD) should lessen, leaving the direction of the USD/CAD exchange rate dependent on more general changes in the US dollar.
The Canadian dollar is affected by BoC caution.
The Bank of Canada (BoC) maintained its key interest rate at 2.25% Tuesday, as was to be expected. However, there was little sign from policymakers that this would soon alter.
"We have long maintained that it is unlikely that the BoC will raise interest rates for the first time until December, if at all. Although there is still plenty of time till then, the most recent statistics now indicate that it may arrive even later.
"With only one rate increase currently factored in by December, market expectations have also swung in this direction in recent weeks. As a result, monetary policy pressure on the Canadian currency is probably going to lessen.
"There are still a lot of issues despite the impending USMCA discussions, the real economy's decline, and political worries. Therefore, those who expect lower USD/CAD levels should keep hoping for a declining US currency.
The Canadian dollar is affected by BoC caution.
The Bank of Canada (BoC) maintained its key interest rate at 2.25% Tuesday, as was to be expected. However, there was little sign from policymakers that this would soon alter.
"We have long maintained that it is unlikely that the BoC will raise interest rates for the first time until December, if at all. Although there is still plenty of time till then, the most recent statistics now indicate that it may arrive even later.
"With only one rate increase currently factored in by December, market expectations have also swung in this direction in recent weeks. As a result, monetary policy pressure on the Canadian currency is probably going to lessen.
"There are still a lot of issues despite the impending USMCA discussions, the real economy's decline, and political worries. Therefore, those who expect lower USD/CAD levels should keep hoping for a declining US currency.
