Bank of Canada set to keep interest rate on hold for a fifth consecutive meeting

The Bank of Canada (BoC) is widely expected to keep its policy rate unchanged at 2.25% on Wednesday. This would be the fifth consecutive gathering with the bank keeping its hand steady.

At its April event, the BoC left rates unchanged at 2.25%, as expected, but the overall message was far from dovish.

While policymakers see some softness in near-term growth, inflation is proving a little more stubborn than anticipated, with wage growth still running in the 3% to 3.5% range. In other words, the economy is slowing, but not enough to completely remove inflation concerns.

Governor Tiff Macklem reiterated that there is no preset path for rates and stressed that policymakers remain guided by incoming data. Importantly, he refused to rule out further tightening, noting that persistently high energy prices could eventually require a policy response. At the same time, he said, existing economic slack should help to contain the inflationary impact of higher energy prices.

Macklem also warned that inflation expectations may be less firmly anchored than they were before the pandemic, while Deputy Governor Carolyn Rogers highlighted trade tensions as a longer-term risk to the outlook.

All in all, the bank remains firmly in wait-and-see mode, but it is not signalling rate cuts anytime soon. Inflation risks still lean modestly to the upside, allowing for further tightening if price pressures prove more persistent than expected.

Inflation, however, remains the key watch point after the headline CPI rose by 2% in the year to April, below the previous month’s print of 2.2% and matching the bank’s target. In the same direction, the BoC’s core inflation eased to 2.1% from a year earlier. The bank’s preferred measures, CPI-Common, Trimmed and Median, also ticked lower, but at 2.5%, 2% and 2.1%, respectively, they still remain above target.

When will the BoC release its monetary policy decision, and how could it affect USD/CAD?

The Bank of Canada will announce its policy decision on Wednesday at 13:45 GMT, followed by a press conference with Governor Tiff Macklem at 14:30 GMT.

Markets anticipate the central bank maintaining its current stance, with a projected tightening of just over 35 basis points by the end of 2026.

Pablo Piovano, Senior Analyst at FXStreet, points out that the Canadian Dollar (CAD) has been depreciating steadily against the Greenback since May, lifting USD/CAD to an area close to the psychological 1.4000 barrier earlier this week.

Piovano says the continuation of the ongoing bullish momentum could prompt the spot to initially reclaim the 2026 ceiling at 1.3966 (March 31). Up from here comes the key 1.4000 threshold, seconded by the November top at 1.4140 (November 5).

On the downside, he adds, “The loss of the 200-day SMA at 1.3813 could pave the way for extra weakness, targeting the weekly floor at 1.3770, which appears reinforced by the provisional 55-day SMA. Down from here emerges the May base at 1.3949 (May 29), ahead of the March trough at 1.3525 (March 9) and the February valley at 1.3504 (February 11).

“Momentum favours extra gains,” he suggests, noting that the Relative Strength Index (RSI) hovers near the 68 level, while the Average Directional Index (ADX) just past 30 is indicative of a strong trend.