Bank of Canada expected to pause rate hikes for a fifth meeting amid contained inflation, contrasting with market bets on 50bps of tightening.
The Bank of Canada is set to keep its policy rate unchanged at 2.25% for a fifth consecutive meeting on Wednesday, as inflation remains contained. This pause contrasts with market expectations, which price in over 50bps of hikes within the next year.
Swaps markets currently reflect more than 50bps of tightening, but analysts see potential for these bets to be scaled back. The BoC’s two-way policy optionality, introduced in April, allows for cuts if trade restrictions escalate or hikes if energy prices remain elevated.
USD/CAD faces immediate resistance at 1.3967, with a break targeting the November 2025 high near 1.4140. The BoC’s extended pause aims to assess whether recent employment and GDP rebounds are sustained.