Bank of Canada Rate Decision: Markets Eye ⁣Macklem’s Tone

Updated ⁣June 04, ⁤2025

the Bank of Canada (BoC) is under pressure following unexpected growth and inflation figures, leading markets to predict a steady rate in June. All eyes are now on Governor Tiff⁤ Macklem’s upcoming⁢ statement for indications⁢ of future monetary policy, particularly regarding USD/CAD.

A resurgence in core inflation has challenged previous expectations of a near-term rate cut. Despite stronger-than-anticipated economic growth, underlying inflation remains above the bank’s ‍target range of 1–3%.This places important importance on Macklem’s signals during the post-decision ⁣press conference.

While rate expectations⁣ have shifted, the USD/CAD exchange rate continues to find support, suggesting a potential near-term rebound.

Canada Growth,Core Inflation Deliver Upside Surprises

Canada’s ⁤economic growth and underlying inflation have both exceeded expectations,prompting a significant adjustment in near-term⁤ rate cut predictions.

First-quarter⁣ GDP growth reached an annual ⁤pace ⁣of 2.2%, driven by increased exports. This surpassed the median forecast of 1.7%, despite weaknesses in household spending and ‍domestic demand.

The acceleration in core inflation caught the market’s⁤ attention, with key CPI measures rising to 13-month highs in April. This occurred even as the headline rate decreased due to lower energy prices.

The average of the two underlying inflation measures rose to 3.15% ⁢annually in April, exceeding both the Bank of Canada’s forecasts and it’s medium-term target range.

Consequently, market expectations for a rate cut diminished, with most now anticipating the boc ‍to⁢ maintain interest rates at 2.75% in June.

BoC june Cut Deemed Highly Unlikely

Swaps markets indicate ⁢a roughly two-thirds probability of⁢ a 25 basis point reduction in July, coinciding with the BoC’s updated forecasts. A full rate cut is not fully priced in until September.

Traders assess the ‍likelihood of⁣ two full 25bp cuts by the⁣ end of 2025 as uncertain, emphasizing the importance of Governor macklem’s guidance during his upcoming press conference.

During its last meeting in April,⁢ the BoC stated⁢ its focus on ensuring “Canadians continue to⁣ have confidence in ⁤price stability through this period of ⁢global upheaval.”

“This means we will⁢ support economic growth while ensuring that inflation remains well‍ controlled,” the bank said.

The BoC said it will proceed cautiously, closely monitoring the impact of higher tariffs on Canadian⁤ exports, business investment, employment, household spending, consumer prices,‍ and⁤ inflation expectations.

USD/CAD: Bearish Trend Losing Steam

Despite recent lows, the USD/CAD ‍has shown resilience, with ‍dips below 1.3700 quickly met with buying activity. the pair continues to consolidate within a falling wedge pattern, attracting buyers at downtrend support.

While the long-term trend favors selling rallies, a near-term upside ⁤move is possible, supported by bullish divergence between the Relative Strength Index (RSI) and price.The bearish momentum that drove a significant reversal from recent highs appears to be weakening.

The 1.3750 level, having served as both support and resistance, is a key focal‍ point for traders. A break ⁤above this level‍ could lead to a retest of wedge resistance.

A clear bullish wedge breakout could stimulate renewed buying interest. Resistance levels to watch include 1.3800,1.3850, and the more defined 1.3900, followed by the 200-day moving average.

Conversely, a break below Monday’s low of 1.3675 could encourage further selling, perhaps driving the downtrend toward the intersection of horizontal support at 1.3650 and ⁤the uptrend from‍ December 2023 lows. If this support zone fails, targets include 1.3540 and 1.3419.

What’s next

Market participants will closely analyze Governor Macklem’s statements for any shifts in the Bank of Canada’s outlook on inflation and economic growth, seeking clues about the timing and magnitude of potential future rate adjustments.