Bank of Canada lowers rates, Canadian dollar edges upwards

The Canadian dollar has posted small gains on Wednesday. In the North American session, USD/CAD is trading at 1.3762, up 0.17% on the day.

There were no surprises from the Bank of Canada, which lowered its policy rate by a quarter-point to 2.5%, its lowest level since July 2022. This was the first time the Bank of Canada lowered rates since March, as it was forced to respond to signs of weakness in the economy and lower inflation.

The rate statement said that a rate cut was justified, given that the economy had weakened and there was less upside risk to inflation. The US tariffs were expected to have a further dampening effect on economic activity.

The statement made three references to the uncertainty of the economic outlook, which has required the BoC to act cautiously. At a follow-up press conference, Governor Macklem defended the rate cut due to a weaker labor market and less upside pressure on underlying inflation.

What was missing from the rate statement and press conference was any forward guidance about future rate cuts, as the central bank doesn't want to be pushed into any corners with regard to future decisions. If inflation risks continue to fade, the BoC could deliver one or even two rate cuts before the end of the year.

Federal Reserve poised to lower rates

The Federal Reserve is virtually certain to lower rates at today's meeting, barring a monumental surprise. The expected rate cut would be the Fed's first since December 2024. With the rate decision virtually a given, investors will be looking for some clues as to whether the Fed is looking at further rates cuts before the end of the year.

• USD/CAD is testing resistance at 1.3752. Above, there is resistance at 1.3770
• There is support at 1.3721 and 1.3703