Bank Of Canada Rate Outlook
The note also points to weak growth conditions and remaining slack in the labour market. These factors are cited as supporting a steady policy stance even if oil prices remain high. The article states it was produced with the help of an AI tool and then reviewed by an editor. Volatility in Bank of Canada rate expectations has increased lately because of the conflict in Iran. Just a few weeks ago, the market was thinking about rate cuts, but now it is pricing in the possibility of hikes. We see this as a temporary swing driven by headline fear rather than a fundamental shift. We think policymakers will look through the recent jump in gasoline prices, which pushed February’s headline CPI to 2.9%. The more important core measures, however, remained stable at 2.4%, which is comfortably inside the Bank’s control band. This gives them room to wait and see, much like they did during the oil price spikes back in 2025.Implications For Curve And Volatility
The case against hiking is strengthened by the latest jobs report, which showed the unemployment rate ticking up to 6.4% last month. Looking back, we saw GDP growth in the final quarter of 2025 was nearly flat, confirming a trend of uninspired growth. With this economic backdrop, a rate hike seems very unlikely. This suggests that the front-end of the curve, which is now pricing in a risk of hikes, is overdone. Traders could consider selling options that profit from a rate increase, as volatility is currently elevated. The current pricing in the OIS market looks like an opportunity to position for the Bank to remain on hold through 2026. Create your live VT Markets account and start trading now.
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