Economists at TD Securities discuss the Bank of Canada (BoC) Interest Rate Decision and its implications for the USD/CAD pair.

Base Case: Mildly Hawkish (70%)

The BoC leaves overnight rate at 5.00% and notes concern about persistent price pressures despite more evidence of waning demand. Modest downgrades to GDP/CPI in Jan MPR, with latter driven by energy prices, as unchanged forward guidance keeps the (empty) threat of rate hikes on the table going forward. USD/CAD -0.10%.

Dovish: (25%)

Bank leaves overnight rate at 5.00% but lays some early groundwork for rate cuts with dovish tweaks to forward guidance by dropping the reference to further hikes. Statement also cites concern around underlying prices/wage pressures despite weaker growth backdrop, while revised guidance introduces some caveats to the timeline for cuts. USD/CAD 0.30%.

Extremely Dovish (5%)

The BoC leaves overnight rate at 5.00% but throws caution to the wind by dropping threat of hikes and leaving guidance open-ended. Statement notes that headwinds to activity have increased and that inflation pressures have subsided outside of shelter component. MPR revises GDP/CPI growth lower over 2023/24, projects flat print on Q4 GDP. USD/CAD 0.70%