The Canadian dollar is unchanged on Tuesday. In the European session, USD/CAD is trading at 1.3831 at the time of writing. The Canadian dollar is under pressure and is having a miserable October, down 2.2%.
BoC expected to chop rates by 50 bps
The Bank of Canada makes its next interest rate decision on Wednesday and the central bank is widely expected to cut rates for a fourth time this year. Will the BoC deliver a modest 25-basis point cut as in previous meetings, or opt for an aggressive 50-bp cut?
The markets anticipate an oversized 50bp cut, as economic growth has been weak, wage growth remains high and inflation is heading lower. Inflation dropped to 1.6% y/y in September, below expectations and moving back below the BoC’s target of 2% for the first time in three years.
With inflation largely contained, the BoC is keeping a close eye on the employment front, but that has made the rate path more complicated. The September employment report showed a strong increase in job growth and a drop in unemployment. The strong job numbers indicate that the labor market remains in decent shape and supports a smaller 25-bps cut.
BoC policymakers will have to decide on the size of the cut and may face the same dilemma at the following meeting in December. The current cash rate of 4.25% is too high and although the BoC has trimmed the rate by 75 bp this year, more needs to be done to boost the economy. The key question is how aggressive will the BoC be in its rate-cutting cycle, which will continue well into 2025.
USD/CAD technical
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USD/CAD tested support at 1.3827 earlier. Below, there is support at 1.3805.
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1.3855 and 1.3877 are the next resistance lines.
