USD/CAD steadied below its 200-day moving average near 1.3950 after the Bank of Canada (BOC) delivered a 25-basis-point rate cut to 2.25%, according to BBH FX analysts. Despite lowering rates, the central bank struck a hawkish tone, highlighting a soft Canadian labour market and ongoing US trade uncertainties, while signaling that further cuts are unlikely.
The BOC emphasized that it will maintain the policy rate at 2.25% if inflation and economic activity evolve broadly as projected. The bank forecasts real GDP growth to average 0.75% SAAR in H2, up from 0.2% in H1, and expects core inflation to ease to 2.9% y/y in Q4 from 3.2% in Q3.
Analysts note that a rate cut below the BOC’s estimated neutral range of 2.25%–3.25% is unlikely, supporting the Canadian Dollar. Additionally, expectations of a stimulative Canadian budget on November 4 and persistent underlying inflation add further support to the CAD despite the recent rate reduction.