Governor Tiff Macklem took questions from reporters and provided more details about the central bank’s thinking. His comments followed a widely expected decision to leave interest rates unchanged at 2.25%.
Highlights of the Bank of Canada press conference
Companies are keen on hiring and investment plans.
The latest jobs data has not changed our economic outlook.
The impact of the federal budget depends on the speed and effectiveness of implementation.
The federal budget was not adding much additional inflationary pressure.
Markets can rely on decisions being made one after another.
Markets will evaluate data related to their expectations.
StatsCan had a very difficult task.
What we don’t want is lower prices.
Both supply and demand appear to be stronger.
The output gap is now smaller.
The third quarter was strong in large part because imports were really weak; Final domestic demand was actually flat.
We expect the fourth quarter to be weak.
We continue to believe that the economy is showing an oversupply.
This section below was published at 14:45 GMT to cover the Bank of Canada’s policy announcements and initial market reaction.
As most market watchers expected, the Bank of Canada (BoC) kept interest rates at 2.25% on Wednesday. Now all eyes turn to Governor Tiff Macklem’s upcoming press conference at 15:30 GMT, where investors will be looking for clues as to what comes next.
Key points in the Bank of Canada’s policy statement
The Bank of Canada reiterates that the current rate is at the right level to keep inflation near 2% as long as the economy and inflation develop in line with expectations.
The Bank of Canada reiterates that if expectations change, it is ready to respond.
CPI inflation will remain close to the 2% target as the economic recession roughly offsets cost pressures associated with the trade reshaping.
Core inflation remains at 2.5%.
GDP growth in the fourth quarter is likely to be weak; Final domestic demand is expected to grow in the fourth quarter but will be offset by lower net exports.
The Canadian labor market is showing some signs of improvement.
Canada’s GDP growth in the third quarter was surprisingly strong, largely reflecting trade volatility.
Market reaction
The Canadian Dollar (CAD) is trading with healthy losses on Wednesday, pushing the USD/CAD pair to advance to weekly highs around 1.3860 in the wake of the Bank of Canada’s interest rate decision.
Canadian dollar price today
The table below shows the percentage change in the Canadian Dollar (CAD) against the major currencies listed today. The Canadian dollar was the strongest against the Australian dollar.
| US dollars | euro | GBP | JPY | Canadian | Australian dollar | New Zealand dollar | Swiss franc | |
|---|---|---|---|---|---|---|---|---|
| US dollars | -0.12% | -0.21% | -0.27% | 0.08% | 0.02% | 0.00% | -0.38% | |
| euro | 0.12% | -0.09% | -0.16% | 0.20% | 0.14% | 0.12% | -0.26% | |
| GBP | 0.21% | 0.09% | -0.06% | 0.29% | 0.23% | 0.22% | -0.17% | |
| JPY | 0.27% | 0.16% | 0.06% | 0.36% | 0.30% | 0.28% | -0.10% | |
| Canadian | -0.08% | -0.20% | -0.29% | -0.36% | -0.06% | -0.08% | -0.46% | |
| Australian dollar | -0.02% | -0.14% | -0.23% | -0.30% | 0.06% | -0.01% | -0.40% | |
| New Zealand dollar | -0.01% | -0.12% | -0.22% | -0.28% | 0.08% | 0.00% | -0.39% | |
| Swiss franc | 0.38% | 0.26% | 0.17% | 0.10% | 0.46% | 0.40% | 0.39% |
The heat map shows the percentage changes in major currencies versus each other. The base currency is chosen from the left column, while the counter currency is chosen from the top row. For example, if you select the Canadian dollar from the left column and move along the horizontal line to the US dollar, the percentage change displayed in the box will represent CAD (base)/USD (quote).
This section below is published as a preview of the Bank of Canada’s (BoC) monetary policy announcements at 10:00 GMT.
The Bank of Canada is expected to keep interest rates at 2.25%.
- The Canadian dollar remains steady, dragging the USD/CAD pair to multi-week lows.
- The Bank of Canada cut interest rates by a quarter of a percentage point in late October.
- The Bank of Canada could start raising interest rates by mid-2026.
The Bank of Canada (BoC) is widely expected to keep its benchmark interest rate at 2.25% at its meeting on Wednesday. This comes after two successive quarter-point interest rate cuts in September and October.
In fact, the central bank cut its benchmark interest rate by 25 basis points in late October, exactly what everyone was expecting.
Moreover, policymakers have indicated that they are very comfortable with where interest rates are now: low enough to support the economy as it adjusts to the fallout from US-led trade tensions, but still tight enough to keep inflation hovering around target.
The inflation problem persists: headline CPI fell to 2.2% year-on-year in October, while core CPI rose to 2.9%. The Bank of Canada’s preferred measures, the headline, trimmed and average CPI, fell slightly, although they are still comfortably above target at 2.7%, 3.0% and 2.9%, respectively.
While reviewing the Bank of Canada’s interest rate decision, analysts at the National Bank of Canada (NBC) noted that “the Bank of Canada is set to leave the interest rate unchanged at 2.25%, after announcing in October that it was ‘about the right level’ to keep inflation near target and help the economy through structural adjustment.”
When will the Bank of Canada issue its monetary policy decision, and how could it affect the USD/CAD pair?
The Bank of Canada will announce its policy decision on Wednesday at 14:45 GMT, followed by a press conference with Governor Tiff Macklem at 15:30 GMT.
Markets expect the central bank to maintain its current stance, with an expected tightening of about 33 basis points by the end of 2026.
Pablo Piovano, Senior Analyst at FXStreet, notes that the Canadian dollar has been steadily rising against the US dollar since November lows north of the 1.4100 area, bringing the USD/CAD back to the 1.3800 area. It also indicates that the technical setup is still leaning towards more losses if the spot price keeps trading below the key 200-day simple moving average at 1.3904.
From here, Piovano says a return to bullish momentum could push USD/CAD higher to test the November high at 1.4140 (November 5), and if that is broken, the next target will be the April ceiling at 1.4414 (April 1).
On the other hand, initial support is highlighted at the December base at 1.3799 (December 8), followed by the September floor at 1.3726 (September 17) and the July valley at 1.3556 (July 3).
“Momentum favors further declines,” he adds, noting that the Relative Strength Index (RSI) is hovering below 36 and the Average Directional Index (ADX) is above 26, indicating that the current trend is gaining strength at a steady pace.
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.
Frequently asked questions about interest rates
Interest rates are charged by financial institutions on loans made to borrowers and are paid as interest to savers and depositors. They are affected by base lending rates, which are set by central banks in response to changes in the economy. Central banks typically have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below the target, the central bank may lower key lending rates, with the aim of stimulating lending and boosting the economy. If inflation rises significantly above 2%, this usually results in the central bank raising key lending rates in an attempt to reduce inflation.
Higher interest rates generally help strengthen a country’s currency because they make it a more attractive place for global investors to put their money.
High interest rates generally affect the price of gold because they increase the opportunity cost of holding gold rather than investing in interest-bearing assets or putting cash in the bank. If interest rates are high this usually causes the price of the US dollar (USD) to rise, and since gold is priced in dollars, this has the effect of lowering the price of gold.
The federal funds rate is the overnight interest rate at which U.S. banks lend to each other. It is the key rate that is frequently set by the Federal Reserve at FOMC meetings. It is set as a range, for example 4.75%-5.00%, although the upper limit (in this case 5.00%) is the quoted figure. Market expectations of the future federal funds rate are tracked by the CME FedWatch tool, which maps how many financial markets will behave in anticipation of the Federal Reserve’s future monetary policy decisions.
