Canadian Dollar: Testing support after BoC hold – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad observes USD/CAD is testing key support at 1.3800, where a break could open further downside. The Bank of Canada (BoC) delivered a hawkish hold, keeping rates at 2.25% but warning about increased upside inflation risks. Markets brought forward hike expectations, which Haddad views as too aggressive given core inflation near target and ongoing excess supply.

Loonie reacts to BoC guidance

"USD/CAD is testing key support at 1.3800, with a break opening the door to further downside. The Bank of Canada (BoC) delivered a hawkish hold yesterday."

"As was widely expected, the BoC kept the policy rate at 2.25% for a seventh consecutive meeting but warned that “the upside risks to inflation have increased.”"

"As a result, markets brought forward expectations for a first 25bps hike from January to December and firmed up odds of 75 to 100bps of tightening over the next twelve months."

"That’s too aggressive in our view given core inflation is near the BoC’s 2% target and indicators point to continued excess supply in the economy."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)