Bank of Canada (BoC) Governor Tiff Macklem speaks on the policy outlook and responds to questions from the press after cutting the policy rate by 50 basis points to 3.25% following the December meeting.
BoC press conference key highlights
“We anticipate a more gradual approach to monetary policy if economy evolves broadly as expected.”
“Monetary policy no longer clearly needs to be in restrictive territory.”
“Previous rate cuts will be working their way through the economy.”
“Economy remains in excess supply and growth outlook appears softer than we predicted in October.”
“We will be looking at core inflation measures to help us assess trend in CPI inflation.”
“We expect sales tax holiday to temporarily lower inflation to around 1.5% in january but that will unwind when the break ends.”
“Possibility of new US tariffs is a major new uncertainty.”
“Policy focus is now to keep inflation close to target.”
“We want to see growth pick up to absorb unused capacity in economy to keep inflation close to 2%.”
“As expected, elevated shelter price inflation has continued to ease and downward pressure on inflation from goods prices has moderated.”
This section below was published at 14:45 GMT to cover the Bank of Canada’s policy announcements and the initial market reaction.
The Bank of Canada (BoC) announced on Wednesday that it lowered the policy rate by 50 basis points (bps) to 3.25% following the December meeting. This decision came in line with the market expectation.
In the policy statement, the BoC dropped the language about it being reasonable to expect further rate cuts if the economy were to evolve in line with the forecasts. Instead, the BoC said that it will evaluate the need for further rate cuts one decision at a time.
BoC policy statement key takeaways
“Canadian Q4 growth looks weaker than expected.”
“The possibility of new US tariffs on Canadian exports to the US has increased uncertainty and clouded the economic outlook.”
“Consumer spending and household activity both picked up in Q3, suggesting lower rates are beginning to boost household spending.”
“Inflation is expected to average close to 2% over the next couple of years.”
“Other federal and provincial policies will affect dynamics of demand and inflation; bank will focus on underlying trends.”
“Reductions in immigration levels suggest 2025 GDP growth will be less than the bank’s October forecast; effect on inflation will be more muted.”
“Wage growth shows signs of easing but remains elevated related to productivity.”
Market reaction to BoC rate decision
USD/CAD edged lower with the immediate reaction to the BoC’s policy announcements and was last seen losing 0.3% on the day at 1.4140.
Canadian Dollar PRICE Today
The table below shows the percentage change of Canadian Dollar (CAD) against listed major currencies today. Canadian Dollar was the strongest against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.27% | 0.14% | 0.12% | -0.24% | 0.32% | 0.25% | 0.05% | |
| EUR | -0.27% | -0.12% | -0.14% | -0.51% | 0.02% | -0.02% | -0.21% | |
| GBP | -0.14% | 0.12% | -0.02% | -0.38% | 0.17% | 0.10% | -0.09% | |
| JPY | -0.12% | 0.14% | 0.02% | -0.35% | 0.20% | 0.12% | -0.06% | |
| CAD | 0.24% | 0.51% | 0.38% | 0.35% | 0.56% | 0.49% | 0.29% | |
| AUD | -0.32% | -0.02% | -0.17% | -0.20% | -0.56% | -0.07% | -0.26% | |
| NZD | -0.25% | 0.02% | -0.10% | -0.12% | -0.49% | 0.07% | -0.19% | |
| CHF | -0.05% | 0.21% | 0.09% | 0.06% | -0.29% | 0.26% | 0.19% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Canadian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent CAD (base)/USD (quote).
This section below was published as a preview of the Bank of Canada’s (BoC) monetary policy announcements at 09:00 GMT.
- Bank of Canada is expected to cut its policy rate by 50 bps.
- The Canadian Dollar fell to fresh four-year lows against the US Dollar.
- Headline inflation in Canada ticked modestly higher in October.
The Bank of Canada (BoC) will announce its decision on monetary policy on Wednesday. The BoC is widely anticipated to trim the benchmark interest rate by 50 basis points (bps), taking it down to 3.25% and totalling 175 bps in cuts since entering the tightening cycle in June.
Ahead of the announcement, the Canadian Dollar (CAD) hovers around its lowest in four years against its American rival. The US Dollar (USD) firmed up particularly in the last quarter of the year, as investors welcomed the Federal Reserve’s (Fed) decision to also quick-start the monetary tightening path. The result of the United States (US) presidential election also backs the Greenback, as the Republican party will return to the White House in 2025 by the hand of Donald Trump.
Canadian economic growth is still a concern
Growth in Canada remains in the eye of the storm. The real Gross Domestic Product (GDP) increased by 0.3% in the third quarter of the year after rising 0.5% in both the second and first quarters. GDP is tracking below BoC’s forecast in the second half of the year, meaning rate cuts have yet to significantly impact economic progress.
Meanwhile, inflation has remained within the central bank’s goal. According to the latest release from Statistics Canada, the Consumer Price Index (CPI) rose by 2.0% in October, higher than the 1.6% posted in September and above the market expectations of 1.9%. On a monthly basis, the CPI gained 0.4%, reversing the previous 0.4% monthly decline and also coming in above estimates. Additionally, core CPI, which strips out volatile items like food and energy, showed an annual uptick to 1.7% from 1.6% in September. On a monthly basis, core CPI gained by 0.4% compared to September’s flat reading.
The uptick in price pressures indeed is not good news for the BoC, yet it is far from concerning. The central bank has clarified in its latest Monetary Policy Report that they expect headline inflation to remain close to target levels for the foreseeable future, as risks to inflation are roughly balanced out. Policymakers also expect GDP to expand a modest 1.2% this year but improve in 2025 by growing 2.1%.
“Canadians can breathe a sigh of relief. It’s a good news story,” BoC Governor Tiff Macklem said during a press conference after the rate announcement. “It’s been a long fight against inflation, but it’s worked, and we’re coming out the other side.”
“Now our focus is to maintain low, stable inflation. We need to stick the landing,” Macklem added.
As a side note, the US will release the November Consumer Price Index (CPI) briefly before the BoC announcement. US inflation figures may have a substantial impact on USD/CAD, particularly if the CPI is hotter than anticipated, given the Federal Reserve (Fed) is scheduled to meet next week.
When will the BoC release its monetary policy decision and how could it affect USD/CAD?
The Bank of Canada will announce its policy decision at 14:45 GMT on Wednesday, followed by a press conference from Governor Macklem at 15:30 GMT. As previously stated, the BoC is anticipated to trim the benchmark interest rate by 50 bps.
A reading in line with the market expectations will have a modest negative impact on the CAD, with the main focus shifting to Macklem’s words. Market players will be looking for hints on whatever policymakers are planning in the near future to rush to price it in.
Surprise decisions, as usual, will have a larger impact on price. A modest 25 bps interest rate cut could be read as “hawkish,” resulting in a stronger CAD.
Valeria Bednarik, Chief Analyst at FXStreet, notes: “The USD/CAD pair neared the 1.4200 level before retreating from the area, still at risk of extending its advance. The broad US Dollar’s strength is unlikely to recede beyond intraday woes. From a technical perspective, USD/CAD is bullish, yet a corrective decline is on the cards. An initial bearish target and potential support level is 1.4104, the November 15 daily high. A break below the level exposes the 1.3920 – 1.3930 price zone.”
Bednarik adds: “A dovish message regarding future interest rate movements may help the pair breach the 1.4200 mark. USD/CAD may then run towards 1.4297, the April 2020 monthly high.”
Canadian Dollar FAQs
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
