Insights 
VT 
The Bank of Canada is set to announce its interest rate decision today at 9:45 am ET. The market currently estimates a 26% probability of a rate cut, with the majority expecting the rate to remain unchanged.
Expectations for a rate cut were higher two weeks ago. However, stronger-than-expected inflation and GDP data, with GDP at 2.2% against a 1.7% prediction, have impacted these expectations.
Canadian Housing Market Struggles
The Canadian housing market is struggling, with the Toronto Real Estate Board reporting a 25% decrease in condo sales and a 10.6% decrease in detached home sales year-over-year. Prices have dropped by 5-6%, and overall home sales have fallen 17.1% year-over-year.
A potential US-Canada trade deal could change market dynamics by boosting confidence and strengthening the Canadian dollar. The market anticipates a 71% chance of a rate cut at the July 30 meeting, expecting 42 basis points of easing this year.
Observations will focus on inflation comments, as prices have dipped below 2%, and how the Bank of Canada views this trend’s sustainability. The exchange rate of USD/CAD may drop if no rate movement occurs, with a key level to watch at 1.3672.
Outlook for the Future
As we look towards the midday announcement, with odds of a cut sitting at just 26%, markets appear to be leaning more towards a wait-and-see stance. The shift in sentiment—just a fortnight removed from broader expectations of a reduction—came as harder data points nudged the scales away from immediate easing.
GDP hitting 2.2%, alongside inflation surprising to the upside, has clearly prompted concern on the policy side about prematurely lowering borrowing costs. The initial pricing of rate cuts, more aggressive just weeks ago, now looks more moderate against this backdrop. The economy’s resilience in output terms complicates further any assumptions about softening in the near term.
Although the central bank’s decision is due shortly, attention must remain on their language. The rate itself could hold steady, but the commentary provides the real insight. What policymakers signal around the persistence of inflation dipping below 2% will be dissected carefully. A mild tone may reinforce expectations for a July move; any stronger concern about sticky inflation could pull the tide completely.
Housing data paints a clear picture of domestic strain. With double-digit declines in both condo and detached sales and prices trailing by mid-single digit figures over the year, there’s mounting pressure from a real economy perspective. Yet, we’ve seen before that monetary authorities can be slow to respond to housing-specific challenges unless broader growth or credit conditions justify it.
On the international front, hope for a breakthrough in trade discussions leaves room for rapid repositioning. A finalized agreement with US counterparts might dampen the case for easing by lifting export optimism and stabilising the currency, which in turn tightens financial conditions naturally. That could delay any action until late Q3 or beyond.
The implied probability of a July cut at 71% still holds strong, and OIS markets are suggesting around 42 basis points of relief through year-end. If that materialises, the pace and size remain smaller than earlier forecasts led us to expect, placing more emphasis on incoming data than in previous cycles.
For the dollar-loonie cross, no move today combined with fairly neutral commentary could prompt a short-lived downward shift in USD/CAD. Trades near the 1.3672 level become relevant once more. That said, failure to break below it could mean positioning rotates on the next data release.
Where we go from here hinges on inflation sticking near current levels—or not. If growth holds steady and the inflation trend reverses course, the bank may regain confidence that current rates are doing enough. If both soften, then guidance in coming weeks may start shifting from debate to preparation.
