Investing.com – The dollar strengthened against its U.S. counterpart on Tuesday as the Bank of Canada took an aggressive stance as it confirmed an upcoming rate cut due to pressure on the USDCAD pair.
Holding rates at 5.0%, as many expected, did not result in a dovish change as had been hoped.
Instead, Bank of Canada Governor Tiff Macklem stressed at a news conference after the announcement that core inflation figures remain too high and that there is no calendar yet for rate cuts.
Money markets are now seeing the Bank of Canada rate change in April of less than 25%, down from more than 40% before the announcement. Bets are now on a rate cut in July rather than June as expected before the Bank of Canada’s rate announcement.
ING currency strategist Francesco Pesole notes that “the Canadian dollar reacted positively to the Bank of Canada’s announcement as the unchanged policy statement defied some expectations that there would be hints of a rate cut.”
Looking ahead to the pair’s medium-term future, Pesolet notes that “the Canadian dollar’s continued correlation with US data and the strong link between Fed and Bank of Canada policy expectations mean the possibility of a major breakout in either direction does not appear very likely.”
ING expects the pair to continue to trade in the 1.34/1.36 range until a more pronounced dollar downtrend emerges in the second quarter, bringing the pair closer to 1.30 in the second half of 2025, in line with consensus – forecast of analysts surveyed by Reuters. .
In a March 1-6 Reuters poll of 40 currency analysts, the average forecast was for the Canadian dollar to strengthen to 1.34 per U.S. dollar in three months and to 1.30 in a year as the U.S. dollar faces a broad decline. and the Fed moves to cut rates.
“The gradual decline in USD/CAD is certainly partly a reflection of the slowing US economy and the start of the Fed’s rate cut cycle,” said Derek Halpenny, head of global markets EMEA and international equities research at MUFG.
“We also assume there won’t be a hard landing (for the economy) and if risk remains broadly benign this year, that should benefit CAD as well.”
Next up for the pair, the focus will be on Canada on Friday and the US.