TD Securities expects the Bank of Canada’s April Monetary Policy Report to use higher oil price assumptions. It points to Brent at USD 90 and WTI at USD 85, compared with a previous baseline of USD 55 for WTI.
The USD 90/USD 85 assumption is linked to the average oil price since 28 January. TD Securities also cites its own baseline of USD 92 for WTI in Q2 and USD 85 by year-end.
It expects the higher oil assumptions to lift the Bank’s inflation track. It projects headline CPI to rise towards 3% in Q2 2026, then ease back towards 2% by end-2027.
It also expects smaller upward changes to the Bank’s core inflation forecasts. The April report may include a separate box examining how higher oil prices affect growth.
The article was produced using an AI tool and checked by an editor.
We expect the upcoming Bank of Canada report to factor in much higher oil prices, with WTI crude assumptions rising to around $85 per barrel. This is a significant jump from their previous baseline and reflects the reality of energy markets so far this year. This change will be the main driver of the Bank’s updated economic outlook.
This will directly translate into a higher inflation forecast, with headline CPI likely to approach 3% in the coming quarter. As a result, derivatives markets are already reducing the odds of a summer interest rate cut, with overnight swaps now pricing in less than a 40% chance of a move in July. The most recent March inflation data, which came in at a stubborn 2.6%, gives the Bank little reason to signal imminent easing.
For traders, this reinforces the case for a stronger Canadian dollar, as the combination of firm oil prices and a patient central bank is a powerful support. WTI crude has averaged over $84 since late January, providing a steady tailwind for the currency. We see potential for USD/CAD to test lower levels in the weeks following the Bank’s report.
While the inflation spike is seen as temporary, with a return to the 2% target still expected by 2027, the immediate policy path is what matters. This suggests positions that benefit from a flat or upward-sloping front end of the yield curve could be favorable. Traders may look at selling front-month Bankers’ Acceptance futures (BAX) to position for a hawkish hold from the Bank.
When we look back at the commodity price surge in 2022, the Bank of Canada acted decisively to control inflation expectations. That history suggests they will not rush to cut rates in the face of another energy-driven price increase. This precedent strengthens the credibility of a “higher for longer” stance.
The report will likely frame higher oil prices as a net positive for Canadian economic growth, further reducing the urgency for rate cuts. This underlying economic strength provides a fundamental reason for the Bank to remain on the sidelines. It gives them a clear justification to wait for more data before signaling any policy pivot.
