CAD flows: USD/CAD dips as BoC seen as less dovish than expected despite 50bp cut

The market has taken the BoC statement as a little less dovish than expected, and yields are a little higher as a result in spite of the 50bp rate cut. From here, the BoC is seen as cutting a similar amount to the Fed, but from a 1% lower base, so the front end spread is not anticipated to change a great deal. This suggests some possibility of stability near current levels, but in the longer run we would still expect USD/CAD to move lower, to levels more in line with long term fair value. The possibility of US tariffs on Canada is still a wild card, but in our view it is unlikely they will ever be put in place, and at the moment there is little evidence of concern in the markets, with USD/CAD continuing to move with rate spreads.