Canadian Dollar: Can BoC tightening and forecasts lend support? – BBH

The Canadian Dollar could find support from upward revisions to the Bank of Canada’s inflation and real Gross Domestic Product (GDP) forecasts following stronger-than-expected Consumer Price Index (CPI) and growth figures, according to Brown Brothers Harriman’s Elias Haddad. Such revisions would strengthen expectations of further rate hikes. Ahead of the policy decision, USD/CAD remains above 1.4000, with markets pricing in an 80% chance of a 25 bps increase to 2.50% that would begin a fresh tightening cycle.

Will a BoC hike and revised forecasts support CAD?

"USD/CAD is holding above key support at 1.4000 ahead of the Bank of Canada (BoC) policy decision and Monetary Policy Report (1:45pm London, 9:45am New York)."

"The BoC will likely raise its inflation and real GDP forecast, which can underpin CAD. September headline CPI printed at 3.1% y/y, exceeding the bank’s 2.5% Q3 projection, while Q2 real GDP grew 3.3% annualized vs. the bank’s 2.5% projection."

"The average of CPI trim and median was 1.85% y/y in September, tracking just below the BoC’s 2.0% Q3 projection. But the pick-up in firm’s one- and two-year inflation expectations could lift the core CPI outlook, reinforcing the case for further hikes."

"The BoC is expected to start tightening with a 25bps hike to 2.50% (80% priced in), after holding rates steady since December 2025. BoC Governor Tiff Macklem’s warned recently that “the risk that inflation broadens and becomes more persistent has gone up”."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)