CAD is trading steady after BoC - Scotiabank

The Canadian Dollar (CAD) is little changed. The BoC policy decision yesterday suggested a cautious outlook for monetary policy amid heightened uncertainty around tariffs. The Bank assumed risks around the 2% inflation target were balanced, suggesting little appetite for more easing, all else equal, Scotiabank's Chief FX Strategist Shaun Osborne notes.

Joly 'cautiously optimistic' after Rubio talks

"Of course, it may not be equal; tariff risks are significant and the Bank noted that a broad-based, long-lasting trade conflict would hurt Canadian growth significantly. How the Bank would respond hinges on the who, what and when of the tariff application and whether Canada responds. The MPR also noted that much of the CAD's recent depreciation could be explained by uncertainty and the increased risk premium applied to the currency around the tariff outlook--rather than the Bank's aggressive rate cutting strategy."

"The threat of 25% tariffs on Canada only really emerged late in the US election campaign, at which point USD/CAD had already risen around 4.5big figures--close to half of the late year rise. The Bank's position suggests there might be significant room for the CAD to rebound if tariff threats were to disappear. I would contend that the wide, short-term rate spread would limit the CAD's ability to recover in a meaningful way at this point. Foreign Affairs Minister Joly said she was 'cautiously optimistic' after meeting Secretary of State Rubio yesterday but acknowledged the risk of hefty tariffs coming this weekend remains."

"Choppy range trade is likely to extend in the short run. The CAD is marginally firmer on the day so far after USD gains yesterday peaked around 1.4475 resistance. Key resistance is 1.4515 ahead of 1.47. The 40-day MA provides initial support (1.4349 today) ahead of key support at 1.4250/60."