CAD: Rate cuts as expected, more likely to follow – Commerzbank

As expected, the Bank of Canada (BoC) The Fed cut interest rates again yesterday by 25 basis points to 4.50%. At the same time, it made clear that further rate cuts are likely to follow, notes Michael Pfister, FX strategist at Commerzbank.

The CAD will remain under pressure in the coming months

“BoC Governor Tiff Macklem said decisions would be taken “one at a time,” meaning there is no predetermined path for rate cuts. However, he also stressed that it was reasonable to expect further rate cuts. And with the annual inflation rate likely to reach close to target over the next two months due to base effects, there is little to argue against further rate cuts.”

“Unless inflation unexpectedly rises significantly, another rate cut in early September is likely to remain the baseline scenario. The general impression was that the BoC was shifting its focus from inflation to growth concerns.”

“As a result, growth forecasts for 2024 and 2025 have been downgraded again. As a result, there is much to suggest that the Canadian dollar (CAD) will remain under pressure in the coming months: after all, the BoC is likely to cut rates further and the real economy will benefit from rate cuts only with a temporary lag. We therefore maintain our forecast for a weaker CAD through the end of the year.”