Economists at TD Securities discuss the Bank of Canada (BoC) interest rate decision and its implications for the USD/CAD pair.

Hawkish Hold (10%)

“Walking a tight rope. BoC keeps overnight rate at 4.50% as outlook evolves in line with January MPR. Statement notes Q1 GDP strength and exceptionally tight labour markets, which are increasingly problematic for inflation while downplaying global banking stress as an external development. 2023 GDP growth revised higher in April MPR while forward guidance unchanged from March. USD/CAD -0.50%.”

Base Case (80%)

Holding the line. BoC keeps overnight rate at 4.50% as outlook evolves in line with projections. Statement flags global banking stress as headwind to foreign demand, but notes Q1 has been stronger than expected. MPR revises 2024 GDP lower w/ 2023 unchanged. Forward guidance also unchanged, leaving conditional hold in place. USD/CAD -0.15%.”

Dovish Hold (10%)

“Closing door to hikes. BoC holds at 4.50% as statement downplays Q1 GDP strength and tight labour markets against easing capacity pressures and a softer global backdrop, while MPR revises 2023 GDP/CPI lower. Statement also alters forward guidance to remove reference to increasing rates further. USD/CAD 0.50%.”