Canadian dollar rises as BoC trims rates

The Canadian dollar is steady on Thursday.  In the European session, USD/CAD is trading at 1.4379, up 0.06% on the day.

Bank of Canada lowers rates to 2.75%

There was no surprise from the Bank of Canada, which lowered rates by a quarter-point, bringing the cash rate to 2.75% and giving a boost to the Canadian dollar.  The BoC has lowered rates at seven consecutive meetings and has chopped 225 basis points since last June.

Behind the modest quarter-point cut, there is growing alarm at the Bank of Canada over the trade dispute with the US.  The rate statement noted the “pervasive uncertainty created by the continuously changing US tariffs threats” was weighing on plans of consumers and business plans to spend.  The statement also warned that “monetary policy cannot offset the impacts of a trade war”.  Governor Macklem echoed these concerns at the follow-up press conference, calling the trade conflict a “new crisis” and warning that the economic impact on Canada could be “severe”.

US inflation drops more than expected

US inflation surprised on the upside in February.  Headline inflation eased to 0.2% m/m from 0.5% and below the market estimate of 0.3%.  Annually, headline inflation dropped to 2.8% from 3% and below the market estimate of 2.9%.

It was a similar story for core CPI, which fell to 0.2% from 0.4%, below the market estimate of 0.3%.  Annually, the core rate dropped to 3.1% from 3.3%, shy of the market estimate of 3.2%.  This marked the lowest level since April 2021 and the decline is significant as core inflation has been persistent and well above the Federal Reserve’s target of 2%.

The Federal Reserve remains in a wait-and-see mode with regard US trade policy.  The Fed is virtually certain to stay on the sidelines at next week’s meeting.  The probability of a rate cut in May has fallen to 30%, down from 46% before the inflation report.

USD/CAD Technical

• USD/CAD tested resistance at 1.4404 earlier.  Above, there is resistance at 1.4454
• 1.4322 and 1.4272 are the next support levels

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