CAD flows: CAD slightly softer after expected 25bp rate cut
USD/CAD edging higher after BoC cut rates 25bps as expected. Few clues on future policy thus far, but USD/CAD risks to the upside
Mild CAD weakness seen after the expected 25bp rate cut from the BoC. Canadian yields are also unchanged, with the statement saying little more than that the BoC are in wait and see mode. Another cut in October is priced as marginally less than a 50-50 chance, but another cut is priced as an 80% chance by December. We see some greater scope for cuts than currently priced in after the clear and quite extreme weakness in employment in the last two months, but there is obviously still a high degree of uncertainty related to the fallout for US tariffs. USD/CAD still looks to have scope to move slightly higher based on yield spreads, and we see risks from the FOMC that the “dots” are less dovish than the market is expecting/pricing in. With the USD generally soft in the run-up to the meeting, this suggests upside risks for USD/CAD.
