BOC rate cut this week – DBS

USD/CAD found support around 1.3450 ahead of the Bank of Canada’s third consecutive interest rate cut expected this week, notes Philip Wee, Senior FX Strategist at DBS.

BOC pauses after three consecutive rate cuts

“On September 4, we expect the overnight lending rate to drop another 25bps to 4.25%. Soft CPI inflation extended its decline within the official target of 1-3% to 2.7% year-on-year in July, the lowest level since April 2021.”
“On September 6, consensus expects the unemployment rate in August to continue rising to 6.5%, the highest level since January 2022. The Trudeau government has taken steps to protect Canadian jobs by halving the share of foreign workers temporary workers with low wages that employers can hire. 10% of the total workforce, effective September 26.”

“However, Canada’s GDP growth surprised by accelerating in a third quarter to an annualized 2.1% QoQ in 2Q24 vs. consensus of 1.8%; Growth in the first quarter was also revised up to 1.8% from 1.7%. We therefore remain wary of any inclination by the BOC to pause after three consecutive rate cuts.”