Canadian Dollar: BoC seen steady as Oil supports CAD – ING

ING’s Francesco Pesole expects the Bank of Canada to keep rates at 2.25%, with limited incentive to push back against modest December tightening pricing. He sees June CPI potentially falling below 3.0% as petrol prices drop, while core remains near 2.0%. CAD front-end rates should be driven by Gulf developments, with supported Oil prices giving CAD short-term momentum, though a sustained USD/CAD break below 1.40 needs further dovish Fed signals.

BoC stance and CAD drivers

"The Bank of Canada will likely keep rates unchanged at 2.25% today, in line with consensus and pricing. However, this meeting could be a litmus test for revamped hawkish bets. There is probably little incentive to openly push back against pricing for December (20bp of tightening), but the BoC has equally very few bases to argue for any earlier action."

"Canada’s June CPI may follow the US measure lower on falling petrol prices, potentially falling back below 3.0%. Most importantly, core measures remain very close to 2.0%."

"The 2Q BoC business survey showed an increase in inflation expectations, but responses were collected in May, before the reopening of the Strait of Hormuz. The latest re-escalation and improved jobs market picture should keep the BoC open to interest rate hikes, but expect the usual mention of USMCA-related concerns to add a dovish ingredient to the overall message."

"We expect few changes in the policy tone by the BoC at this meeting, leaving CAD front-end rates primarily driven by developments in the Gulf. CAD should enjoy more short-term momentum if oil prices stay supported and the BoC doesn’t surprise on the dovish side."

"Still, a sustainable break below 1.40 in USD/CAD requires further dovish Fed inputs, while USMCA headlines may keep offering support to the pair."