Canadian Dollar: BoC rate hike bets boost support against USD - BBH

Brown Brothers Harriman’s (BBH) Elias Haddad expects the Bank of Canada (BoC) to begin a new tightening cycle with a 25bps hike to 2.50%, citing rising inflation risks. The central bank is also seen revising inflation and Gross Domestic Product (GDP) forecasts higher, with stronger data and firmer expectations reinforcing the case for further hikes. This policy backdrop is viewed as positive for the Canadian Dollar.

BoC hike expectations and stronger data support Canadian Dollar

"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. Know more.)