Canadian Dollar: BoC tightening and forecasts to back currency – BBH

Brown Brothers Harriman’s Elias Haddad notes USD/CAD is holding above 1.4000 ahead of the Bank of Canada decision, where an 80% priced 25 bps hike to 2.50% would mark the start of a new tightening phase. The bank is likely to raise its inflation and real Gross Domestic Product (GDP) forecasts after upside surprises in Consumer Price Index (CPI) and growth, which would underpin the Canadian Dollar and reinforce expectations for further hikes.

BoC hike and forecast shift eyed

"USD/CAD is holding above key support at 1.4000 ahead of the Bank of Canada (BoC) policy decision and Monetary Policy Report (1:45pm London, 9:45am New York)."

"The BoC will likely raise its inflation and real GDP forecast, which can underpin CAD. September headline CPI printed at 3.1% y/y, exceeding the bank’s 2.5% Q3 projection, while Q2 real GDP grew 3.3% annualized vs. the bank’s 2.5% projection."

"The average of CPI trim and median was 1.85% y/y in September, tracking just below the BoC’s 2.0% Q3 projection. But the pick-up in firm’s one- and two-year inflation expectations could lift the core CPI outlook, reinforcing the case for further hikes."

"The BoC is expected to start tightening with a 25bps hike to 2.50% (80% priced in), after holding rates steady since December 2025. BoC Governor Tiff Macklem’s warned recently that “the risk that inflation broadens and becomes more persistent has gone up”."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)