The Canadian Dollar (CAD) is trading under pressure against the US Dollar (USD) on Wednesday, as markets digest the latest interest rate decision from the Bank of Canada (BoC). At the time of writing, the USD/CAD is trading around the 1.3861 level, with traders’ attention now turning to the Federal Reserve’s (Fed) monetary policy announcement scheduled for later at 19:00 GMT.
The Bank of Canada kept the overnight interest rate unchanged at 2.25%, in line with market expectations, and maintained a steady tone in its policy statement. The central bank noted that although global conditions remain uncertain, the Canadian economy expanded at a stronger-than-expected 2.6% in the third quarter, driven primarily by volatile trade flows rather than strong domestic demand.
The Bank of Canada now expects GDP to decline in the fourth quarter before rebounding in 2026. Inflation remains close to target, with headline CPI at 2.2% and core measures holding between 2.5% and 3%. Given this background, the Governing Council reiterated that the current rate is “about the appropriate level” to manage inflation risks and guide the economy through broader structural adjustments linked to global trade frictions.
Governor Tiff Macklem’s opening comments before the press conference reinforced the bank’s cautious stance. He acknowledged the economic impact caused by steep US tariffs, but stressed that the Canadian economy has shown resilience. Macklem also noted that inflation pressures remain under control and that keeping the interest rate at the lower end of the neutral range is appropriate for the time being.
In the US, the Federal Reserve is preparing to cut interest rates by another 25 basis points, which will bring the federal funds rate down to a range of 3.50%-3.75%. The immediate focus will be on Fed Chairman Jerome Powell’s post-meeting press conference, along with an updated outline and economic outlook.
Bank of Canada FAQs
The Bank of Canada (BoC), headquartered in Ottawa, is the institution that sets interest rates and manages Canada’s monetary policy. It does this at eight scheduled meetings annually and ad hoc emergency meetings held as appropriate. The Bank of Canada’s primary mandate is to maintain price stability, which means keeping inflation at a level of 1-3%. The main tool for achieving this is raising or lowering interest rates. Relatively high interest rates usually lead to a stronger Canadian Dollar (CAD) and vice versa. Other tools used include quantitative easing and tightening.
In extreme cases, the Bank of Canada can enact a policy tool called quantitative easing. Quantitative easing is the process by which the Bank of Canada prints Canadian dollars for the purpose of purchasing assets—usually government or corporate bonds—from financial institutions. Quantitative easing usually leads to a weaker Canadian dollar. Quantitative easing is considered a last resort when simply lowering interest rates is unlikely to achieve the goal of price stability. The Bank of Canada used this measure during the Great Financial Crisis of 2009-2011 when credit froze after banks lost confidence in each other’s ability to repay debts.
Quantitative tightening (QT) is the opposite of quantitative easing. It is implemented after quantitative easing when the economic recovery is underway and inflation begins to rise. Whereas in QE, the Bank of Canada buys government and corporate bonds from financial institutions to provide them with liquidity, in QE, the Bank of Canada stops purchasing any more assets, and stops reinvesting the capital owed on the bonds it already holds. It is usually positive (or bullish) for the Canadian dollar.
