The Canadian dollar extends losses while the Bill keeps rates amid concerns about inflation and commercial risks

• The Canadian dollar weakens for the fifth consecutive day, pressured by a strong US dollar.
• The Canada Bank maintains its key interest rate by 2.75%, as expected, citing persistent underlying inflation and commercial uncertainty.
• Reuters survey: 18 of 28 economists forecast a 25 basic points cut in September; 17 They expect at least two cuts this year.

The Canadian dollar (CAD) extends losses due to fifth consecutive session against the US dollar (USD) on Wednesday, since the dollar continues its widespread recovery after economic data of the United States stronger than expected. Adding bearish pressure on the Loonie, the Bank of Canada (BOC) left its reference interest rate without changes in 2.75%, as was widely anticipated, citing high underlying inflation and a growing global uncertainty.

The combination of US robust data and a cautious posture of the BOC is feeding the uprising impulse in the USD/CAD. At the time of writing, the USD/CAD pair is around 1,3810, its highest level from May 30, with an increase of more than 0.70% so far this week.

The Boc’s decision to maintain its policy rate at 2.75% indicates a cautious posture while officials balance the persistent underlying inflation with signs of deceleration of internal growth and growing commercial uncertainty. While general inflation has been moderated, underlying inflation remains stubbornly above 3%, which leaves those responsible for policy reluctant to loosen too soon. In his accompanying statement, the BIL recognized signs of moderation in economic activity, but emphasized that the risks of inflation remain inclined up to rise, particularly in the midst of continuous salary growth and resistant consumer spending.

The Central Bank also highlighted continuous uncertainty about commercial relations between the US and Canada as a growing downward risk. “While some elements of the US commercial policy have begun to become more concrete in recent weeks, trade negotiations remain fluid, the threats of new sectoral tariffs continue, and US trade actions remain unpredictable,” the BOC in his policy statement said.

The markets had widely anticipated that the Boc would keep the rates unchanged, with the monetary markets assessing only 7% probability of a cut before the decision. Even so, the bank did not rule out the possibility of cutting up rates later this year, keeping those expectations alive. According to a Reuters survey, almost two thirds of economists (18 of 28) hope that the BOC will begin to cut rates in September, forecasting a reduction of 25 basic points to 2.50%. While there is no firm consensus about where the rates will be located at the end of the year, more than 60% of respondents (17 economists) project at least two more cuts of rates in 2025, with five predicting up to three reductions before the end of the year.

The attention now moves to the press conference of Governor Tiff Macklem and the publication of the Monetary Policy (MPR) report, which will provide new forecasts on growth and inflation and can shed light on the next MOC movements. Meanwhile, attention also focuses on the monetary policy decision of the Federal Reserve that will be announced later on Wednesday, where it is widely expected that the Fed maintains interest rates without changes. However, after a series of US optimistic data publications, the operators will be observing the future orientation of the Fed in search of hard line signals that can reinforce the strength of the US dollar and exert more pressure on the Canadian dollar.