The Bank of Canada kept its policy rate unchanged at 2.25% at 13:45 GMT, followed by a press conference at 14:30 GMT. Governor Tiff Macklem said higher energy prices for longer could lead to a rate rise, but there is no set timeline.<\/p>\n
Macklem said the bank sees some slack in the economy and does not expect energy costs to be quickly passed into wider prices. He said there is a risk inflation expectations are not as well anchored as before Covid, while confidence in the bank\u2019s credibility has not been eroded.<\/p>\n
Senior Deputy Governor Carolyn Rogers said trade tensions pose a larger longer-term risk than higher oil prices. She also said there is no single inflation number that would fully change the bank\u2019s view.<\/p>\n
In its projections, the BoC sees growth at 1.2% in 2026 (1.1% in January), 1.6% in 2027, and 1.7% in 2028. Inflation is expected to average 2.3% in 2026 (2.0% previously), then 2.1% in 2027 and 2.0% in 2028.<\/p>\n
The output gap in Q1 is put at -1.5% to -0.5%, and annualised GDP growth is forecast at 1.5% in Q1 and 1.5% in Q2. Assumptions include oil falling to $75 per barrel by mid-2027, a neutral rate range of 2.25% to 3.25%, and wage growth of 3% to 3.5%.<\/p>\n
After the decision, USD\/CAD moved above 1.3700. Reuters reported 76% of polled analysts expect no change in policy in 2026.<\/p>\n
The Bank of Canada is signaling it will remain on the sidelines, creating a period of uncertainty for the Canadian dollar. Governor Macklem’s concern that inflation expectations are becoming unanchored suggests a hawkish bias is simmering beneath the surface. This wait-and-see approach means we should prepare for range-bound trading in the near term but be ready for a sharp move on new data.<\/p>\n
We must closely watch energy markets, as Macklem explicitly linked a potential rate hike to sustained higher oil prices. With West Texas Intermediate crude recently touching $92 a barrel due to the ongoing US-Iran conflict, the Bank’s assumption of a decline to $75 looks increasingly optimistic. Any further supply disruption would challenge the Bank’s patience and could trigger a rapid repricing of rate hike odds.<\/p>\n
Domestically, inflation remains the primary concern, even with economic growth looking soft at a projected 1.2% this year. Looking back at the first quarter data from 2026, shelter inflation remained stubbornly high at 6.1% year-over-year, a trend that continues to pressure the headline number. The next CPI release will be critical, as another reading above the Bank’s 2.3% forecast for the year would shorten the odds of a more aggressive policy stance.<\/p>\n
Given this backdrop, we see value in options strategies that benefit from either a sudden spike in volatility or a continued sideways grind. Buying straddles or strangles on USD\/CAD could be an effective way to position for a breakout triggered by oil prices or a surprise inflation report. For those expecting the current holding pattern to continue, selling iron condors could capture premium as the currency pair remains contained.<\/p>\n
The policy divergence with the U.S. Federal Reserve remains a key driver putting upward pressure on the USD\/CAD pair. The Fed’s policy rate sitting at 3.00% versus our 2.25% makes holding U.S. dollars more attractive, supporting the pair above the 1.3700 level. Until the Bank of Canada signals a clear intent to close this gap, any dips in USD\/CAD are likely to be viewed as buying opportunities.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" Bank of Canada holds 2.25% rate; warns prolonged high energy prices may revive hikes, amid slack.<\/p>\n","protected":false},"author":38,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[46],"tags":[],"class_list":["post-46207","post","type-post","status-publish","format-standard","hentry","category-live-updates"],"acf":[],"aioseo_notices":[],"featured_image_src":null,"featured_image_src_square":null,"author_info":{"display_name":"josephine","author_link":"https:\/\/www.vtmarketsglobal.com\/en\/author\/josephine\/"},"_links":{"self":[{"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/posts\/46207","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/users\/38"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/comments?post=46207"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/posts\/46207\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/media?parent=46207"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/categories?post=46207"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/tags?post=46207"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}