The Bank of Canada has maintained its policy rate at 2.75%, considering U.S. trade uncertainties, Canadian economic resilience, and ongoing inflation pressures. Due to unpredictable U.S. tariff actions, the July Monetary Policy Report includes three scenarios: current tariffs, escalation, and de-escalation, rather than a traditional forecast.<\/p>\n
Global growth shows resilience, while Canada’s momentum has declined. In Q1 2025, growth was strong as firms expedited exports ahead of tariffs, but Q2 saw a likely 1.5% contraction. Export declines to the U.S. and dampened demand restrained spending, with job losses impacting trade-exposed sectors. However, employment growth continues in other areas, and both business and consumer sentiment are modestly improving.<\/p>\n
CPI inflation is slightly below 2%, attributed to the carbon tax removal, but core inflation has risen to about 2.5%. This is primarily driven by non-energy goods, while shelter inflation remains high but is decreasing. Despite softened business inflation expectations, consumer expectations stay high. The Bank forecasts inflation near 2%, with balanced risks.<\/p>\n
Governor Macklem highlighted that the Bank is monitoring data closely and may adjust policy if necessary. The policy rate remains unchanged, but a potential rate cut could occur if economic conditions worsen and inflationary pressures are controlled, ensuring price stability during this global uncertainty.<\/p>\n
The Bank of Canada\u2019s decision to hold rates while signaling a clear dovish bias suggests we should position for a potential rate cut. The latest jobs report from early July 2025 showed unemployment rising to 7.1%, and Statistics Canada’s most recent CPI data showed headline inflation easing to 1.7%, strengthening the case for looser policy. We believe traders should consider buying call options on Bankers’ Acceptance (BAX) futures, which would profit if short-term interest rates fall in the coming months.<\/p>\n
Given the Bank’s three-scenario framework dependent on U.S. trade actions, we expect significant volatility in the Canadian dollar. Implied volatility on USD\/CAD options has already climbed to 8.5%, reflecting the heightened uncertainty around upcoming trade negotiations and the August GDP release. This suggests that buying option straddles or strangles could be a way to profit from a large price swing, regardless of the ultimate policy outcome.<\/p>\n
However, we must note that a rate cut is not guaranteed, and the market may be getting ahead of itself. Overnight index swaps are already pricing in nearly an 80% probability of a 25-basis-point cut by the September meeting, meaning a decision to hold could cause a sharp reversal. The Bank remains concerned about core inflation, which is still elevated at 2.3%, giving it a valid reason to wait for more data before acting.<\/p>\n
This environment is similar to the period of uncertainty we saw in late 2024, when initial tariff threats first caused a sharp, temporary spike in rate volatility. Therefore, traders should be closely watching the upcoming Canadian retail sales figures and any preliminary statements from U.S. trade representatives. These data points will be critical in shaping the Bank\u2019s next move and market direction.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" Bank of Canada holds rate at 2.75%, monitors inflation, trade uncertainty; potential cuts if conditions worsen.<\/p>\n","protected":false},"author":62,"featured_media":17022,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-27684","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/posts\/27684","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/users\/62"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/comments?post=27684"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/posts\/27684\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/media\/17022"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/media?parent=27684"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/categories?post=27684"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/tags?post=27684"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}