Canadian Dollar recedes after BoC cuts rates and ends QT

• The Canadian Dollar lost 0.25% against the Greenback on Wednesday.
• The Bank of Canada cut interest rates by another 25 bps, to 3%.
• The BoC also announced the end of its quantitative tightening program.

The Canadian Dollar shed one-quarter of one percent against the Greenback on Wednesday, falling back after the Bank of Canada (BoC) slashed another 25 bps from interest rates, bringing the BoC's main reference rate down to 3.0%. The Canadian interest rate peaked at 5% in July of 2023, and the BoC's latest rate cut follows two back-to-back jumbo cuts of 50 bps in October and December of last year.

The Bank of Canada also announced the end of its quantitative tightening program, and is expected to restart asset purchases in early March. However, BoC Governor Tiff Macklem pulled back from the brink, saying that the BoC isn't expecting to full-on restart quantitative easing programs immediately. The looming threat of widespread trade tariffs from US President Donald Trump is definitely weighing on the BoC, and rate swap markets are pricing in nearly-even odds that the Canadian central bank will deliver another 25 bps rate cut in March.

Daily digest market movers: Canadian Dollar sheds weight after BoC rate cut

• Despite getting knocked back post-BoC rate cut, the Canadian Dollar is still treading water within its recent range, keeping USD/CAD hobbled near the 1.4400 handle.
• With the CAD's interest rate differential against the US Dollar set to widen further heading into Q2, Loonie bulls have limited room to run.
• Tariffs are the looming threat to the BoC's policy stance in 2025.
• BoC policymakers have brushed off the Loonie sitting at multi-year lows against the USD for the time being, but continued declines may spark policy adjustments moving forward.
• The BoC also snuck in a slight upside revision to inflation forecasts, now see annualized inflation metrics to hold slightly above the 2.0% target through 2026.
• BoC Governor Macklem: Tariffs threat weighed on the bank's decision

Canadian Dollar price forecast

The Canadian Dollar has shed some weight against the US Dollar for three consecutive trading days, falling back around four-tenths of one percent through the first half of the trading week and bolstering USD/CAD back above the 1.4400 handle. The pair has been in a rough sideways grind for over six weeks after the Loonie fell to multi-year lows against the Greenback and USD/CAD tapped 1.4500 for the first time since the pandemic.

USD/CAD price action remains hobbled in a choppy flat channel between 1.4300 and 1.4500, with bids continuing to swirl around 1.4400 in back-and-forth chart momentum. The pair is overall poised for a topside break into chart paper above 1.4500, but a pullback below the 50-day Exponential Moving Average (EMA) rising into 1.4270 could see an extended bearish slide.

USD/CAD daily chart