The Bank of Canada will announce its interest decision at 9:45 AM ET. The expectations are for a cut in rates of 25 basis points to 4.75% from 5.0%. A Reuters poll of 29 forecasts and 22 expecting a 25 basis point cut while seven see no change. The market has an 80% chance of a cut in June.

The last change in policy was a hike in July 2023 (a hike of 25 basis points). The last cut in rates was in March 2020 (a decline of 50 basis points to 0.25%). The Bank of Canada started its hike cycle 0.25 basis points on March 2022.

At the April meeting, the statement said:

  • Rate Hold: The Bank of Canada (BOC) held its target for the overnight rate at 5%, with the Bank Rate at 5¼% and the deposit rate at 5%.

  • Quantitative Tightening: The BOC continues its policy of quantitative tightening.

  • Global Economy:

    • Expected to grow at about 3%, with gradual easing of inflation in most advanced economies.
    • US GDP growth stronger than anticipated; euro area projected to recover gradually.
    • Global oil prices and bond yields have increased; financial conditions have eased.
  • Canadian Economy:

    • Growth stalled in the second half of last year, leading to excess supply.
    • Labor market easing, with slower employment growth and a rising unemployment rate (now at 6.1%).
    • Wage pressures are moderating.
  • Forecasts:

    • GDP Growth: 1.5% in 2024, 2.2% in 2025, and 1.9% in 2026.
    • Inflation: CPI inflation slowed to 2.8% in February, expected to be close to 3% in the first half of this year, below 2.5% in the second half, and reach 2% target in 2025.
  • Outlook:

    • BOC will monitor core inflation, demand-supply balance, inflation expectations, wage growth, and corporate pricing behavior.
    • Aim to ensure sustained downward momentum in inflation and maintain price stability.

Since then,

  • CPI was lower than expected at 0.5% MoM (vs 0.6% estimate) with the YoY declining to 2.7% from 2.9%. Although near the high of the 1%-3% target, entering into the band is good news and the trend is lower. Although inflation is down, there is some stickiness
  • GDP came in at a disappointing 1.7% last week which was well below the 2.2% estimate (annualized).
  • Employment data was better at 90.4K jobs. The unemployment rate has seen a steady rise since bottoming at 4.9% in 2022. It is up to 6.1%.The Canadian jobs report will be released on Friday with expectations of job gains of 20 K and the unemployment rate rising to 6.2%

On May 1, BOC Tiff Macklem said:

  • Core Inflation: Expects core inflation to continue to ease gradually.

  • Rate Cut: Indicates the Bank of Canada is getting close to cutting rates.

  • Confidence in Inflation Trends: Data since January has increased the BOC's confidence that inflation will continue to decrease gradually.

On May 2nd he said:

  • Rates Unlikely to Return to Pre-Covid Levels: Macklem stated that interest rates are unlikely to return to pre-Covid levels.

  • Gradual Path for Rate Reductions: Even when interest rates are reduced, the path is expected to be gradual.

  • Preemptive Rate Cuts: The central bank might start cutting rates before inflation hits the 2% target, emphasizing the importance of a sustainable decline in inflation.

  • Impact of Carbon Tax: Eliminating the federal carbon tax would reduce inflation for one year, but inflation would then revert to its previous trajectory.

  • Interest Rate Cuts and the Canadian Dollar: If interest rate cuts weaken the Canadian dollar, this impact would be considered in determining the extent of rate reductions.

On May 22, Bank of America after the recent inflation report said that "falling core clears the way for a June cut".

More specifically, they said:

  • We expect the BoC to cut in June given that
  • Core inflation continues to trend down
  • Labor market is softening overall
  • The economy continues to grow below potential

However, they did say also that there is a risk of June being postponed to July:

  • There are two inflation prints before the July meeting, which has a Monetary Policy Report


  • The BoC can cut even if the Fed takes longer to cut
  • Baseline is 25bp consecutive cuts once the BoC gets going, so we expect the policy rate at 3.75% by end-2024 and 3.00% by end-2025
  • Risk is for fewer cuts as the BoC could cut at a slower pace than in our forecasts while it waits for the Fed to cut

Bank of Canada Macklem will conduct a press conference starting at 10:30 AM ET.

For a technical review of the USDCAD with key levels to eye through the rate decision, watch the video below: