For its upcoming June policy meeting, the Bank of Canada (BoC) is expected to likely hold rates steady at 2.75% as it deliberates in a challenging environment of trade disputes, uncertainty over inflation, and domestic policy upheaval. Most market analysts priced in a rate pause, similar to the previous decision to compare prior to.
Following similar decisions in March and April; whereby policymakers assessed risks related to trade and recent inflation indicators appear softer.
Canadian Dollar Nears Yearly Highs Despite Inflation Dips
Despite weaker-than-expected inflation, the Canadian Dollar (CAD) has strengthened against the US Dollar (USD), recently approaching year-to-date highs in the 1.3700 region. This appreciation comes after a sharp rebound from the 1.4400 area earlier in the year. However, markets remain sensitive to macroeconomic uncertainty, particularly stemming from renewed US tariff policies under President Donald Trump’s administration.
Inflation Trends and BoC’s Balanced Policy Approach
Canada’s headline CPI has recently fallen below the BoC’s 2% target, further complicating the central bank’s policy path. In its last meeting, Governor Tiff Macklem emphasized a symmetric approach to inflation, noting concern about whether inflation overshoots or undershoots its benchmark. He also cautioned against interpreting the term “decisively” as a direct policy signal, indicating a data-dependent and measured outlook.
Trade Policy and Uncertainty to Dominate the Press Conference
With global trade policy again in the spotlight, particularly due to the White House’s shifting tariff stance, trade-related concerns are expected to dominate discussions at Governor Macklem’s press conference. Macklem has previously noted that the Bank’s economic projections could become clearer once international trade dynamics stabilize. For now, this policy ambiguity is reinforcing the need for a steady hand on interest rates.
Mixed Signals from the Labor Market and Council Members
While some members of the Governing Council seem confident the inflation will be cooling, others remain cautious by uncertain about fiscal policy, trade, and inflation expectations. Deputy Governor Carolyn Rogers addressed these concerns recently by saying that while there is market volatility, Canadian institutions are well-capitalized and robust to withstand shocks to the economy.
USD/CAD Faces Bearish Pressure
From a technical perspective, the USD/CAD cross has recently broken below its 200-day Simple Moving Average (SMA), indicating a decent possibility for further downside risk. FXStreet analyst Pablo Piovano reported that USD/CAD posted a 2025 low of 1.3673 on June 2, so, the next possible downside objectives could be a move towards the September 2024 low of 1.3418. Upside technical resistance, however, appears to be at the May high of 1.4015, with the April and March highs (1.3900 and 1.3770, respectively) acting as additional upside hurdles as well.
Based on other technical indicators such as the RSI and ADX, further bearish momentum is likely. The RSI crossed below 40 and the ADX range at 27 indicates the potential for USD/CAD to continue its bearish momentum unless the BoC or US report larger market-moving numbers than expected.
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