BoC's Macklem: The Canadian Dollar is behaving as expected
Bank of Canada Governor Tiff Macklem addressed reporters’ questions, offering insights into the central bank’s policy stance. His comments followed a widely expected 25-basis-point rate cut to 2.25%.
BoC press conference key highlights
The Bank of Canada cut rates again to support the economy through adjustment to US trade policy.
Monetary policy has limited ability to boost demand while maintaining low inflation, given the damage tariffs are doing to Canada’s economic prospects.
By end-2026, Bank sees the level of GDP about 1.5% lower than forecast in January, due to weaker demand as well as lost capacity.
We expect opposing forces on inflation to roughly offset each other, keeping the overall rate close to 2%.
There continues to be considerable uncertainty about US tariffs and their impacts.
Range of possible outcomes is wider than usual; we need to be humble about our forecast.
Monetary policy is providing some stimulus.
Impact of US tariffs is clearly evident in Canada.
The labour market is soft. Hiring has been weak across the economy.
Upside momentum in the bank’s preferred inflation measures has dissipated.
US trade policy remains unpredictable.
Our job is never done; the economy is always evolving.
We expect the pace of consumption growth to moderate.
If the outlook changes materially, we are ready to respond.
The Canadian Dollar is behaving as expected.
We expect a modest recovery in housing.
This section below was published at 13:45 GMT to cover the Bank of Canada's policy announcements and the initial market reaction.
As widely anticipated by market analysts, the Bank of Canada (BoC) cut its policy rate by 25 basis points to 2.25% on Wednesday. Investors will now turn their attention to Governor Tiff Macklem’s customary press conference at 14:30 GMT.
The central bank lowered its growth forecasts and signalled a slower pace of expansion ahead. Roughly half of the downgrade reflects the impact of tariffs, with the rest attributed to weaker demand from US trade policies. Regarding inflation, it is expected to remain near target, while potential output growth moderates over the next two years.
BoC policy statement key highlights
The bank cut its 2025 growth forecast to 1.2% from 1.8% in January’s monetary policy report.
It now sees growth at 1.1% in 2026 (vs 1.8%) and 1.6% in 2027.
Annualised GDP growth is projected at 0.5% in Q3 and 1.0% in Q4.
Inflation is forecast to average 2.0% in 2025 (down from 2.3% in January), 2.1% in 2026 (unchanged) and 2.1% in 2027.
Potential output growth is expected to slow to 1.0% in 2026 from 1.6% in 2025, then rise to 1.3% in 2027.
The Q3 output gap is estimated to be between -1.5% and -0.5%, broadly unchanged from Q2.
The nominal neutral interest rate is assumed to remain in the 2.25% to 3.25% range.
Market reaction
The Canadian Dollar (CAD) trades with decent gains on Wednesday, sparking the third consecutive daily pullback in USD/CAD, which slips back to the low-1.3900s in the wake of the BoC’s interest rate decision.
Canadian Dollar Price Today
The table below shows the percentage change of Canadian Dollar (CAD) against listed major currencies today. Canadian Dollar was the strongest against the British Pound.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.13% | 0.55% | -0.08% | -0.16% | -0.23% | -0.07% | 0.54% | |
| EUR | -0.13% | 0.42% | -0.21% | -0.28% | -0.36% | -0.20% | 0.41% | |
| GBP | -0.55% | -0.42% | -0.62% | -0.70% | -0.78% | -0.62% | -0.01% | |
| JPY | 0.08% | 0.21% | 0.62% | -0.09% | -0.16% | 0.00% | 0.61% | |
| CAD | 0.16% | 0.28% | 0.70% | 0.09% | -0.08% | 0.09% | 0.70% | |
| AUD | 0.23% | 0.36% | 0.78% | 0.16% | 0.08% | 0.16% | 0.78% | |
| NZD | 0.07% | 0.20% | 0.62% | -0.01% | -0.09% | -0.16% | 0.61% | |
| CHF | -0.54% | -0.41% | 0.00% | -0.61% | -0.70% | -0.78% | -0.61% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Canadian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent CAD (base)/USD (quote).
This section below was published as a preview of the Bank of Canada's (BoC) monetary policy announcements at 09:00 GMT.
- The Bank of Canada is expected to lower its interest rate to 2.25%.
- The Canadian Dollar remains on the back foot vs. the US Dollar in October.
- The BoC reduced its policy rate by a quarter-point in September.
- The impact of US tariffs on the domestic economy clouds the outlook.
The Bank of Canada (BoC) is widely expected to trim its benchmark interest rate by another quarter point on Wednesday, bringing it down to 2.25%. That would follow a similar move in September as the central bank continues its gradual easing cycle.
The case for more cuts has been building. Growth has stalled, the labour market has lost momentum, and inflation remains stubbornly above target. Canada’s economy shrank by 1.6% in the second quarter, worse than forecast, while the job market surprised with a 60K gain in September, keeping the Unemployment Rate steady at 7.1%.
Inflation remains a sticking point. Headline CPI rose 2.4% YoY last month, surpassing expectations, and core CPI climbed to 2.8%. The Bank’s preferred measures—Common, Trimmed, and Median CPI—also nudged higher to 2.7%, 3.1%, and 3.2%, respectively.
Back in September, the BoC cut rates by 25 basis points to 2.50%, a move that markets had fully priced in. After that meeting, Governor Tiff Macklem struck a cautious tone, saying the inflation picture hadn’t changed much in the last few months. He pointed to mixed data and emphasised a meeting-by-meeting approach. While inflationary pressures appear somewhat more contained, he stressed that the Bank stands ready to act if risks start to tilt higher.
Previewing the BoC’s interest rate decision, analysts at TD Securities noted, “We look for the Bank of Canada to cut rates by 25 bps to 2.25% in October, which we believe will mark the endpoint of its easing cycle. We do not believe stronger September data will be enough to keep the Bank on hold, but it should contribute to a more balanced tone in the statement as the Bank stresses a data-dependent approach going forward.”
When will the BoC release its monetary policy decision, and how could it affect USD/CAD?
The Bank of Canada will announce its policy decision on Wednesday at 13:45 GMT, followed by Governor Tiff Macklem’s press conference at 14:30 GMT.
Markets are already braced for a rate cut and pricing around 31 basis points of easing by the end of the year.
According to FXStreet’s Senior Analyst Pablo Piovano, the Canadian Dollar (CAD) has been consolidating near the upper end of its recent range, near the key 1.4000 mark. He notes that as long as USD/CAD holds above the 200-day simple moving average (SMA) around 1.3950, the pair could have more room to climb.
A renewed bullish tone, Piovano adds, could see USD/CAD retesting the October peak at 1.4080 (October 14), before potentially eyeing the April high at 1.4414 (April 1).
On the flip side, he points out that strong support sits around the 200-day SMA at 1.3952, seconded by the transitory 55-day and 100-day SMAs at 1.3887 and 1.3799, respectively. A break below that zone might open the door to the September floor at 1.3726 (September 17), with the July base at 1.3556 (July 3) coming into view if selling pressure deepens.
“Momentum indicators are still tilted to the upside,” Piovano adds. “The Relative Strength Index (RSI) is hovering near 57, while the Average Directional Index (ADX) stands near 37, suggesting the trend remains strong.”
Bank of Canada FAQs
The Bank of Canada (BoC), based in Ottawa, is the institution that sets interest rates and manages monetary policy for Canada. It does so at eight scheduled meetings a year and ad hoc emergency meetings that are held as required. The BoC primary mandate is to maintain price stability, which means keeping inflation at between 1-3%. Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Canadian Dollar (CAD) and vice versa. Other tools used include quantitative easing and tightening.
In extreme situations, the Bank of Canada can enact a policy tool called Quantitative Easing. QE is the process by which the BoC prints Canadian Dollars for the purpose of buying assets – usually government or corporate bonds – from financial institutions. QE usually results in a weaker CAD. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The Bank of Canada used the measure during the Great Financial Crisis of 2009-11 when credit froze after banks lost faith in each other’s ability to repay debts.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Bank of Canada purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the BoC stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Canadian Dollar.
Canadian Dollar FAQs
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.