USD/CAD holds under its 200-day moving average near 1.3950 after the Bank of Canada delivered a 25bps policy rate cut to 2.25%. The BOC highlighted a soft labour market and US trade uncertainty but signaled it is unlikely to ease further, while expectations of a stimulative Canadian budget and firm inflation underpin the CAD, BBH FX analysts report.

BOC trims policy rate 25bps to 2.25%

"USD/CAD retraced all its post-Bank of Canada meeting losses but is holding under its 200-day moving average (1.3950). Bank of Canada (BOC) delivered a hawkish cut yesterday. In line with expectations, the BOC cut the policy rate 25bps to 2.25% (85% priced-in). The BOC emphasized that 'Canada’s labour market remains soft' and 'US tariffs and trade uncertainty have weakened the Canadian economy'."

"However, the BOC said it plans to keep the policy rate at 2.25% “if inflation and economic activity evolve broadly as the BOC projects.” The BOC projects real GDP growth to average 0.75% SAAR in H2 vs. 0.2% in H1 and sees core inflation easing to 2.9% y/y over Q4 vs. 3.2% in Q3."

"Indeed, we doubt the BOC slashes the policy rate below the lower end of its estimated neutral range of 2.25% to 3.25% which bodes well for CAD. Canada’s government is expected to deliver a stimulative budget on November 4, and underlying inflation is running hot."