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Bank of Canada seen holding rates at 2.25% as oil supports CAD

ING expects June CPI to fall below 3.0% on lower petrol prices, with core inflation near 2.0%, helping limit pressure for earlier BoC action.

Reported · Written up by our desk · Major Pairs

INGs Francesco Pesole expects the Bank of Canada to keep its policy rate unchanged at 2.25%, with limited incentive to counter market pricing for additional tightening into December.

FXStreet notes that the outlook hinges partly on inflation: Pesole sees June CPI potentially dropping below 3.0% as petrol prices fall, while core inflation is expected to remain close to 2.0%.

The note also points to how CAD could trade around external drivers, with CAD front end rates supported in the short term if oil prices stay firm, while a sustained break in USD/CAD below 1.40 would require additional dovish signals from the Federal Reserve.

While the 2Q BoC business outlook survey showed higher inflation expectations, Pesole argues the latest re escalation and improving jobs picture keep the central bank open to hikes, tempered by expectations of USMCA related concerns in the message.

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