The Bank of Canada today said it would take a 'material' change in its lowered outlook for the economy to cut rates again. The central bank lowered its overnight rate to 2.25% from 2.50% but indicated that's the final cut planned, while acknowledging considerable uncertainty around trade and the path of growth.
The market still sees a nearly 50% chance of a further cut by mid-2026 but that's diminished from 75% before the decision. With that, USD/CAD has slid to the lowest since September 28, down 56 pips to 1.3890.
I think equally important in the Canadian dollar outlook were comments from Trump on Air Force One in Asia. He was asked about his 10% tariff increase on Canada and said:
"I don't know when it's going to kick in, and we'll see, but I don't really want to discuss it."
The market never really believed it was a serious tariff threat -- and over a TV ad -- and I think that comment underscores that it's not to be taken seriously.
In addition, Trump is meeting China's Xi tomorrow and expected to finalize a trade deal that's much better than feared weeks ago. It should provide some tailwinds to 2026 global growth, improving the outlook for Canadian commodity exports.
