BoC: Policy on hold with rangebound Loonie – Societe Generale

Societe Generale economists expect the BoC to keep its policy rate at 2.25%, despite weaker employment and lower CPI. Markets now price about 33 bps of tightening by year-end after the Iran conflict. They see scope for further front-end mean reversion, with 2-year GCAN yields easing and USD/CAD likely to stay near 1.3695 as Fed policy dominates.

Neutral BoC stance and front-end reversion

"The BoC also is widely expected to keep its policy rate unchanged at 2.25%, the low end of the neutral range. The shock decline in employment and drop of headline CPI to 1.8% yoy in February (base effects) won’t compel the central bank to change its view."

"Money markets are pricing roughly 33bp of tightening by year‑end, compared to flat before the onset of the Iran conflict. The BoC will publish updated macro projections at the April meeting. A supply shock from oil prices was not listed among the main risk factors for inflation in the January MPR and this will require a refresh next month. Inflation was previously forecast to average 2.0% in 2026 based on the lower trajectory for crude prices. "

"USD/CAD is probing the upper boundary of a steeper descending channel near 1.3750/1.3800, which also coincides with the 200‑DMA and the upper end of a brief consolidation. A short‑term pullback cannot be ruled out. The lower end of the recent range at 1.3480 should act as an important support."

"The loonie should remain rangebound near 1.3695 (50dma), with the Fed more likely to have a bigger say. Technicals are neutral, the 100d/200dma cross at 1.38."

"If the pair crosses the 200‑DMA, the next hurdles could be located at a projection of 1.3860 and the January highs near 1.3930/1.3960."

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