The Canadian Dollar (CAD) weakened against the US Dollar (USD) on Wednesday after the Bank of Canada (BoC) lowered its policy rate by 25 basis points (bps) to 2.50%, in line with expectations. At the time of writing, USD/CAD trades near 1.3757 in the US session, snapping a two-day losing streak.
Boc cuts as growth slows and inflation risks ease
In its policy statement, the BoC highlighted three developments that shifted the balance of risks since July: a softer labor market, easing underlying inflation, and Canada’s removal of most retaliatory tariffs, which reduced upside risks to prices.
Second-quarter Gross Domestic Product (GDP) contracted by 1.6%, exports to the United States fell sharply, and heightened uncertainty over US trade policy weighed on business investment.
Governor Tiff Macklem emphasized that the Governing Council reached a clear consensus on today’s decision, describing the cut as appropriate given weaker growth and moderating inflation pressures. He reiterated the BoC’s commitment to data dependence, noting that the bank will closely monitor trade disruptions, labor market slack, and inflation expectations.
A notable shift in the statement was the removal of explicit forward guidance on further cuts. While the BoC left the door open to additional easing if economic conditions deteriorate, the change signals a more flexible, data-driven approach rather than a pre-set path of reductions.
USD steady as Fed decision looms
A firm US Dollar added to CAD weakness, with traders awaiting the Federal Reserve’s (Fed) policy decision later in the day. The Fed is widely expected to lower rates by 25 bps to the 4.00%-4.25% range. However, market focus will fall on the updated Summary of Economic Projections (SEP), dot plot, and Chair Jerome Powell’s press conference for clues on the pace and scale of the upcoming easing cycle.
