The Bank of Canada (BoC) reduced its policy interest rate by 25 basis points to 2.50%, in line with market expectations. This marks the first rate cut since April. According to the BoC, the decision was supported by a consensus among policymakers, driven by signs of a weakening labor market, reduced upward pressure on core inflation, and lower inflation risks going forward.
The BoC’s more dovish stance contrasts with the Norges Bank’s more hawkish approach, contributing to continued weakness in the CAD/NOK currency pair, according to FX analysts at Brown Brothers Harriman (BBH).
Markets are now pricing in an 80% chance of another 25bps rate cut by the end of the year, which would bring the policy rate to 2.25%. There is also some expectation of a further cut to 2.00% within the next 12 months, especially if labor market conditions continue to deteriorate.