CAD: Dovish risks today - ING

The Canadian Dollar (CAD) has dropped less than other G10 currencies during this round of US Dollar (USD) appreciation. For the moment, domestic factors aren't playing much of a role, and markets remain quite conservative on Bank of Canada rate cuts, pricing in only 15bp by year-end, ING's FX analyst Francesco Pesole notes.

Today's BoC meeting to generate some dovish repricing

"As the BoC announces policy today, the chances of a cut appear quite low, but the risks in our view are tilted to the dovish side. The BoC Business Outlook shows limited pass-through from tariffs to Canadian consumers but signs of slower hiring, investment and consumer demand."

"Then, there is the crucial point of US-Canada trade negotiations. From what has been reported, both Canadian and US officials think progress has been lackluster. And while we know that the market's baseline expectation is that trade deals will ultimately be agreed, the EU experience (and its spillover into EUR/USD) suggests the conditions of those deals aren't secondary for the FX impact."

"Given how conservative BoC pricing is and economic/trade risks, we expect today's BoC meeting to generate some dovish repricing and add pressure on CAD. We continue to target 1.39 this quarter for USD/CAD."