BoC rate hike bets lend Canadian Dollar support against USD - BBH

A 25bps rise to 2.50% is expected to mark the start of a new Bank of Canada (BoC) tightening cycle, according to Brown Brothers Harriman’s (BBH) Elias Haddad, who points to mounting inflation risks. Upward revisions to the central bank’s inflation and Gross Domestic Product (GDP) forecasts are also anticipated. Stronger economic figures and firmer expectations add weight to the argument for further rate increases, a policy outlook seen as supportive of the Canadian dollar.

Canadian dollar gains support from firmer data and BoC rate rise expectations

"The BoC is expected to start tightening with a 25bps hike to 2.50%, 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.” The swaps curve price in 85% odds of a hike this week."

"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 and bode well for CAD."

"The BoC is also expected to raise its inflation and real GDP forecast. 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."

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