The Bank of Canada (BoC) is on track to continue its rate-cutting cycle into next year, potentially bringing the policy rate down to 3% by the summer of 2024, according to a commentary by ING.
The outlook follows the BoC's recent decision to cut the overnight rate, a move that has seen the Canadian dollar (CAD) trade slightly stronger amid market reassessments of the pace of future rate cuts.
“We essentially see the BoC cutting rates 25 basis points at each meeting until next summer, by which time the policy rate is expected to be down at 3%,” ING stated. The commentary noted that the loonie's moderate strengthening came as some market participants had expected signals of a more aggressive easing path, potentially including 50 basis point cuts before the year’s end.
Despite this, ING sees limited potential for a hawkish shift in the CAD curve at this stage, with few indications that the BoC will deviate from its gradual easing trajectory. The central bank's recent actions are driven by a complex economic backdrop characterized by rising unemployment, moderating inflation, and lackluster economic growth.
Looking ahead, ING suggests that the BoC is likely to continue its easing cycle in the upcoming October and December meetings. The outlook for the CAD remains cautious, with the currency seen as a lower-risk, lower-reward option compared to its peers, such as the Australian and New Zealand dollars.
Factors such as the U.S. Federal Reserve's upcoming meeting and U.S. and Canadian jobs data are expected to have a more significant impact on the USD/CAD pair in the near term.
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