The Bank of Canada (BoC) is widely expected to keep its policy rate unchanged at 2.25% for a fourth consecutive meeting, as noted by both MUFG and Societe Generale analysts [1][2]. The decision comes against a backdrop of persistent inflation risks, with Derek Halpenny at MUFG highlighting that the BoC is likely to adopt a more hawkish tone due to higher, more persistent inflation and ongoing geopolitical tensions, particularly the unresolved closure of the Strait of Hormuz [1]. Societe Generale points out that inflation expectations among businesses and households have risen, which could tempt the BoC to raise rates closer to the midpoint of the neutral range (2.75%) later this year, barring economic deterioration or escalation of tariff hostilities with the US [2].
The Canadian Dollar (CAD) has performed robustly, gaining about 2% against the US Dollar (USD) in April [2]. However, MUFG notes a short-term bias favoring the USD due to the prospect of conflict re-escalation and rising crude oil prices, with the latest IMM positioning data showing the largest week of CAD selling by Leveraged Funds since July 2024 [1]. Despite this, CAD is expected to outperform other energy-importing G10 currencies in a re-escalation scenario, although it may underperform the USD [1]. Societe Generale warns that the upcoming United States-Mexico-Canada Agreement (USMCA) review could prompt profit-taking in May, impacting CAD's recent gains [2].
Technical analysis from Societe Generale identifies support levels for USD/CAD at 1.3600/1.3570 and resistance at 1.3733 and 1.3815 [2]. MUFG also anticipates a downward revision to GDP growth and an upward revision to inflation in the BoC's Monetary Policy Report, reinforcing the central bank's inflation-focused stance [1].
No forward-looking statements or analyst opinions regarding CAD or BoC are provided in Source 3, which focuses on EUR/GBP price action and monetary policy expectations for the ECB and BoE [3].
CONCLUSION
The Bank of Canada is expected to maintain its policy rate at 2.25%, with analysts highlighting rising inflation risks and a more hawkish tone. The Canadian Dollar has shown resilience but faces potential headwinds from geopolitical tensions and the upcoming USMCA review. Market participants should monitor inflation trends and policy signals for further direction.