The Bank of Canada (BoC) is widely anticipated to hold its benchmark interest rate steady at 2.25% this Wednesday, maintaining the pause initiated in December. Previously, policymakers indicated that current rates are likely sufficient to return inflation to the 2% target, assuming the economy evolves as projected. However, they emphasized their flexibility to act should economic conditions deteriorate or inflation threats resurface.
On inflation, the outlook remains cautiously positive; headline CPI is expected to stay near target as economic slack counters trade-related cost pressures. Yet, underlying inflation remains elevated, signalling the disinflationary process is ongoing. Economic growth appears mixed: Q4 GDP is projected to be weak due to a drag from net exports, despite solid domestic demand. This follows an unusually strong Q3, which the BoC attributes to trade volatility rather than sustained momentum. The labor market is showing tentative improvement, reinforcing the Bank’s patient stance. Nevertheless, inflation remains the primary focus, with December headline CPI ticking up to 2.4% while core inflation slowed to 2.8%. The Bank’s preferred core measures also eased slightly but remain comfortably above the target range
Ahead of the Bank of Canada’s upcoming interest rate decision, analysts at the National Bank of Canada (NBC) widely anticipate that the overnight target will remain unchanged at 2.25%. This consensus view, shared by broader markets and OIS forecasters, would represent a second consecutive pause. NBC notes this aligns with policymakers’ October assessment that the current policy stance is appropriate for maintaining inflation targets while supporting economic transition.
The BoC is scheduled to announce its decision and release the Monetary Policy Report (MPR) on Wednesday at 14:45 GMT, followed by Governor Tiff Macklem’s press conference at 15:30 GMT. The market generally expects the central bank to maintain its current stance, pricing in only about 10 basis points of tightening by the end of 2026.
Regarding the currency impact, Pablo Piovano, Senior Analyst at FXStreet, highlights the Canadian Dollar’s steady appreciation against the USD since hitting yearly lows above 1.3900 earlier this month. Piovano notes that USD/CAD has broken the 1.3700 support level, hitting new 2026 lows. He identifies the immediate downside target at the December 2025 low of 1.3642, followed by further support levels at 1.3575, 1.3556, and the 2025 bottom of 1.3538.
Conversely, Piovano suggests that if bullish momentum returns, USD/CAD would first need to reclaim the 200-day SMA at 1.3833, before targeting the 2026 high of 1.3928. Further resistance lies at the 1.4000 psychological threshold and the November peak of 1.4140. Currently, however, Piovano argues that momentum favors further declines, pointing to an RSI nearing 33 and an ADX around 27, indicating a strong bearish trend