CAD: Waiting with little possible orientation – MUFG

On a day in which the US dollar (USD) was sold throughout the G10, the Canadian dollar (CAD) advanced 0.7% yesterday, helped in part by the decision of the Canada Bank not to cut the rates again, this being the first BOC pause since the beginning of the relaxation cycle in June last year. The OIS market was partially valued for a 25 basic points cut (with a probability of around 35%-40%), so the decision to keep the fees helped to push the USD/CAD down, says MUFG’s currency analyst Derek Halpenny.

The Boc pauses, but the cuts are still on the horizon as commercial risks persist

The Council of Governors ‘will proceed with caution, with particular risks and uncertainties faced by the Canadian economy’. The BOC also published its monetary policy report and, given the difficulty of providing the panorama, presented two scenarios: scenario 1 was the most benign, with ‘negotiated’ commercial tariffs, but under a difficult and uncertain process that lasts until the end of 2026. Scenario 2 assumed that the current tariffs are increased by the US and a “prolonged commercial war” develops.

“The scenario 1 sees a global and Canadian growth that will slowly slow down and inflation decreases to 1.5% for a year and then returns to the 2.0% target. In scenario 2 there is a more pronounced fall in global growth and inflation increases, but in Canada a” significant recession “develops with a temporary increase in inflation to 3.0% in mid -2026 before returning to the objective of 2.0%.

“Based on these scenarios and the comment of Governor Macklem to act ‘decisively’ if necessary, this pause will probably not last and a rate cut in June is probable, assuming that by then we have more clarity in the commercial policy of the United States. aggressive, and the Boc will cut more than what is valued. “