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

A 25bps Bank of Canada (BoC) rate hike to 2.50% is expected by Brown Brothers Harriman’s (BBH) Elias Haddad. He sees rising inflation risks prompting a new tightening cycle. The central bank is also expected to lift its inflation and Gross Domestic Product (GDP) forecasts. Stronger data and firmer expectations bolster the case for additional rate increases, a policy backdrop viewed as supportive of the Canadian Dollar.

Canadian Dollar supported by BoC rate-hike expectations and firmer data

"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. Learn more.)