The Bank of Canada (BoC) left its policy rate unchanged at 2.25% during its latest monetary policy announcement, a move that was widely anticipated by market participants [1]. In its statement, the BoC emphasized that the current rate remains appropriate to support economic recovery and to guide inflation back to its 2% target, consistent with projections in the latest Monetary Policy Report [1]. Despite the announcement, the Canadian Dollar showed little reaction, with USD/CAD trading flat around 1.4051, near a one-month low [1].
The BoC's updated forecasts included a downward revision to 2026 economic growth, now expected at 0.7% compared to the previous 1.2%. For the near term, second-quarter growth is estimated at an annualized rate of 2.5%, followed by 1.5% in the third quarter [1]. On the inflation front, the central bank raised its 2026 projection to 2.5% from 2.3%, and now expects inflation to return to its 2% target by early 2027 [1]. The BoC identified US trade policy and the war in the Middle East as the two biggest risks to its outlook [1].
Market reaction was muted, with traders awaiting further guidance from BoC Governor Tiff Macklem's post-meeting press conference [1]. On the US side, softer-than-expected Producer Price Index (PPI) data weighed on the US Dollar, but the Canadian Dollar failed to capitalize, leaving USD/CAD broadly unchanged [1]. The US Dollar Index (DXY) traded around 100.80 after easing from an intraday high of 101.03 [1].
US PPI data showed headline PPI falling 0.3% month-on-month in June after a 0.6% rise in May, below the forecast of 0%. Annual producer inflation slowed to 5.5% from 6.0%, missing expectations of 6.2%. Core PPI rose 0.2% month-on-month, below the expected 0.4% but above May's 0.1% gain, while the annual core rate edged up to 4.7% from 4.6%, also below the 5.2% forecast [1].
CONCLUSION
The Bank of Canada’s decision to hold rates steady and its downward revision of growth forecasts, alongside a higher inflation outlook, failed to move the Canadian Dollar significantly. Market participants appear to be awaiting further clarity from Governor Macklem, while external risks and US inflation data continue to shape sentiment.