CAD trades softer into BoC policy decision - Scotiabank

Broader US Dollar (USD) strength explains the modest drop in the Canadian Dollar (CAD) on the session so far. The BoC policy decision today is expected to result in a 25bps rate cut which is already largely factored in. Swaps have been effectively discounting a January ease for some time, with the strength of some recent data releases (jobs, retail) only marginally affecting pricing, Scotiabank's Chief FX Strategist Shaun Osborne notes.

USD/CAD holds established range

"OIS pricing reflects 95% chance of a 1/4-point cut today, taking the target rate to 3.00%. The policy decision and MPR are released at 9.45ET, with Governor Macklem and Senior DG Rogers speaking to reporters at 10.30ET. The Bank will provide more detail on its analysis of the impact of tariffs on the domestic economy today and, given the uncertainty around the outlook, it may signal that the pace of easing will slow in the coming months."

"Significant tariffs applied broadly to Canadian exports would prompt a severe slowing in domestic growth. US tariffs and retaliation on US goods coming into Canada would slow growth and boost inflation, tilting risks towards rate hikes. On the tariff front, today's meeting between Foreign Affairs Minister Joly and US Secretary of State Rubio may give some sense of the near-term tariff risks facing Canada."

"The USD is nudging higher again but remains well within the broader range that has prevailed since mid-December. USD/CAD support in the low/mid 1.43 zone remains firm (40-day MA rising to 1.4339 today) but, absent new, bullish impulses, USD gains should remain contained to the 1.4475 zone. Key support is 1.4255/60. Key resistance is 1.4515/20."