Upside potential for the Loonie in the coming months – Commerzbank

The Loonie benefited significantly from Wednesday’s BoC decision with USD/CAD nosediving a full figure lower to 1.3500. Economists at Commerzbank analyze the pair’s outlook.

Fairly hawkish decision

The BoC left its key interest rate unchanged at 5%. At the same time, the BoC continued to emphasize that it is too early to talk about rate cuts. The statement also kept the reference to ongoing risks for the inflation outlook. Overall, this was a fairly hawkish decision. 

Some market participants were expecting a more dovish tone in the statement. The fact that the BoC did not deliver reinforces our view that the BoC is unlikely to cut rates until after the Fed. We therefore continue to see upside potential for the CAD in the coming months.