Ella 
The Bank of Canada is widely expected to cut its policy rate for a third consecutive time at its Sept. 4 meeting. Like the central bank’s previous resolution, the central bank may cut interest rates by 25 points, bringing the benchmark interest rate down to 4.25%.
The Canadian dollar has been trending lower against the U.S. dollar since the start of the year, with USD/CAD reaching new highs near 1.3950 in early August. Since then, however, the Canadian dollar has embarked on a period of sharp appreciation, dragging the pair down around 5% by the end of August.
In July, Canada’s domestic inflation rate, measured by the overall consumer price index (CPI), fell further to 2.5%, and the Bank of Canada’s core CPI fell further below the 2.0% target, with the annual rate rising by 1.7%. The central bank’s rate cut expectations appear to be related to continued declines in consumer prices and expectations for further easing in the Canadian labor market.
Inflation has remained below 3% since January, in line with the central bank’s forecast for the first half of 2024, with key core inflation also showing a continued decline. Additionally, the Bank of Canada will likely continue to base future interest rate decisions on economic data. Current swaps markets are pointing to around 36 basis points of easing in September.
