BoC expected to cut interest rate again amid weak growth and a soft labour market

• The Bank of Canada is expected to lower its interest rate to 2.25%.
• The Canadian Dollar remains on the back foot vs. the US Dollar in October.
• The BoC reduced its policy rate by a quarter-point in September.
• The impact of US tariffs on the domestic economy clouds the outlook.

The Bank of Canada (BoC) is widely expected to trim its benchmark interest rate by another quarter point on Wednesday, bringing it down to 2.25%. That would follow a similar move in September as the central bank continues its gradual easing cycle.

The case for more cuts has been building. Growth has stalled, the labour market has lost momentum, and inflation remains stubbornly above target. Canada's economy shrank by 1.6% in the second quarter, worse than forecast, while the job market surprised with a 60K gain in September, keeping the Unemployment Rate steady at 7.1%.

Inflation remains a sticking point. Headline CPI rose 2.4% YoY last month, surpassing expectations, and core CPI climbed to 2.8%. The Bank's preferred measures--Common, Trimmed, and Median CPI--also nudged higher to 2.7%, 3.1%, and 3.2%, respectively.

Back in September, the BoC cut rates by 25 basis points to 2.50%, a move that markets had fully priced in. After that meeting, Governor Tiff Macklem struck a cautious tone, saying the inflation picture hadn't changed much in the last few months. He pointed to mixed data and emphasised a meeting-by-meeting approach. While inflationary pressures appear somewhat more contained, he stressed that the Bank stands ready to act if risks start to tilt higher.

Previewing the BoC's interest rate decision, analysts at TD Securities noted: "We look for the Bank of Canada to cut rates by 25bps to 2.25% in October, which we believe will mark the endpoint of its easing cycle. We do not believe stronger September data will be enough to keep the Bank on hold, but it should contribute to a more balanced tone in the statement as the Bank stresses a data-dependent approach going forward."

When will the BoC release its monetary policy decision, and how could it affect USD/CAD?

The Bank of Canada will announce its policy decision on Wednesday at 13:45 GMT, followed by Governor Tiff Macklem's press conference at 14:30 GMT.

Markets are already braced for a rate cut and pricing around 31 basis points of easing by the end of the year.

According to FXStreet's Senior Analyst Pablo Piovano, the Canadian Dollar (CAD) has been consolidating near the upper end of its recent range, near the key 1.4000 mark. He notes that as long as USD/CAD holds above the 200-day simple moving average (SMA) around 1.3950, the pair could have more room to climb.

A renewed bullish tone, Piovano adds, could see USD/CAD retesting the October peak at 1.4080 (October 14), before potentially eyeing the April high at 1.4414 (April 1).

On the flip side, he points out that strong support sits around the 200-day SMA at 1.3952, seconded by the transitory 55-day and 100-day SMAs at 1.3887 and 1.3799, respectively. A break below that zone might open the door to the September floor at 1.3726 (September 17), with the July base at 1.3556 (July 3) coming into view if selling pressure deepens.

"Momentum indicators are still tilted to the upside," Piovano adds. "The Relative Strength Index (RSI) is hovering near 57, while the Average Directional Index (ADX) stands near 37, suggesting the trend remains strong."