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Economists at TD Securities provide insights into the Bank of Canada’s (BoC) Interest Rate Decision and its potential implications for the USD/CAD pair.
Base Case: Mildly Hawkish (65%)
In the base case scenario, with a probability of 65%, the Bank maintains the overnight rate at 5.00%, awaiting further progress on underlying inflation. The statement reiterates that higher rates are curbing demand despite robust Q4 GDP growth, with inflation pressures remaining widespread. No significant changes are expected in guidance, leading to a projected decrease of 0.10% in USD/CAD.
Slightly Dovish: (30%)
With a 30% probability, the Bank keeps the overnight rate steady at 5.00% while monitoring progress. The statement acknowledges that higher rates continue to dampen demand as the economy moves closer to excess capacity. While the last paragraph softens language regarding inflation risks, the overall guidance remains unchanged, emphasizing the need for further or sustained easing. This scenario is anticipated to result in a 0.25% increase in USD/CAD.
Extremely Dovish (5%)
In the least likely scenario, with a 5% probability, the Bank maintains the overnight rate at 5.00% but hints at potential near-term cuts through a guidance shift. The statement highlights soft growth contributing to excess supply, along with considerably softened price pressures since the January meeting. Guidance removes references to inflation risks and adopts a softer tone regarding the Governing Council’s desire for further progress. This scenario predicts a 0.60% increase in USD/CAD.
The analysis by TD Securities provides a comprehensive overview of the potential outcomes of the BoC Interest Rate Decision and their expected impacts on the USD/CAD pair.
