The Bank of Canada is unlikely to accelerate interest rate hikes even if Canada secures a favorable tariff deal, according to TD Securities analyst Robert Both. The central bank will maintain its cautious stance as it awaits concrete economic data showing how reduced tariffs impact export volumes and domestic output levels.
Critical trade figures needed to assess the tariff agreement’s economic effects won’t be available until November, creating a significant information lag for policymakers. This data gap means the BoC will need to exercise patience before adjusting its monetary policy trajectory, regardless of any diplomatic breakthroughs on the trade front.
The development affects Canadian dollar positioning and interest rate derivative markets, as traders had been pricing in potential rate acceleration scenarios tied to tariff resolution. Fixed income and FX markets should prepare for an extended period of BoC restraint despite potential positive trade developments.
FXnCO Insight
Traders should fade any CAD strength rally triggered by tariff deal headlines, as the BoC’s data-dependent approach ensures policy won’t tighten before November at the earliest.
Source: FXStreet