MUFG’s Derek Halpenny notes that the Canadian Dollar has shown resilience since the onset of the conflict, largely due to oil-linked terms of trade supporting its value [1]. The Bank of Canada (BoC) is scheduled to announce its monetary policy decision today at 13:45 GMT, with expectations that it will hold rates and deliver a cautious message emphasizing the uncertainty surrounding energy-driven inflation [1]. This caution is underscored by recent economic data, including a significant decline in employment: jobs fell by 84,000 in February, with full-time employment dropping by 108,000—the largest decrease since April 2020 at the start of the COVID-19 pandemic [1].
Halpenny suggests that the BoC will stress the need for additional time to assess the potential inflation impact from higher energy prices before making any policy decisions [1]. Despite the Canadian Dollar's current resilience, its performance may not persist, especially if the conflict continues and crude oil prices rise further beyond the USD 100-level. In such a scenario, CAD support from terms of trade could diminish if North American growth risks increase and equity markets suffer [1].
MUFG maintains that there is scope for BoC easing by year-end, assuming geopolitical tensions de-escalate within the next two weeks. However, the immediate outlook is for USD/CAD to remain in a relatively tight trading range unless the conflict and oil prices escalate significantly [1].
CONCLUSION
The Bank of Canada is expected to hold rates and issue a cautious statement, reflecting uncertainty around energy-driven inflation and recent weak employment data. Analysts see USD/CAD staying in a tight range unless geopolitical tensions and oil prices escalate further. There is potential for BoC easing by year-end if risks subside.