Breaking News: Bank of Canada Leaves Interest Rate at 2.75%, USD/CAD Steady

[Ben Graham]

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The Bank of Canada kept its benchmark interest rate steady at 2.75% in its June 2025 decision, meeting the expectations of half the market. This marks the second time rates have been held steady after cutting them by 2.25 percentage points over seven straight decisions.

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The governing council pointed out that the back-and-forth changes in US tariffs, along with uncertain trade negotiations and tariff rates staying much higher than at the start of 2025, pose risks to growth and raise inflation expectations.

This has made the council cautious about continuing to ease monetary policy. The uncertainty comes from the lack of a clear US tariff strategy and ongoing threats of new trade actions, leading the council to emphasize risks like how higher US tariffs could lower demand for Canadian exports.

Key Takeaways from Bank of Canada (BoC) Monetary Policy Report

Bank of Canada Governor Macklem went further stating that the recent further increases in US tariffs on steel and aluminum underline the unpredictability of US trade policy.

Bank of Canada Governor Tiff Macklem stated that the Governing Council sees the potential need for a future rate cut if the economy weakens under the pressure of tariffs and if inflationary cost pressures are kept in check. While inflation has shown some unusual volatility, core measures indicate that underlying inflation may be stronger than initially expected.

Macklem noted that it is still too early to observe the direct impact of retaliatory tariffs on consumer price data. He also highlighted that businesses are signaling plans to scale back hiring, and while spending by Canadian households and businesses has shown some resilience, caution is likely to persist.

The Governor reiterated that the Governing Council is currently taking a less forward-looking approach than usual.

Initial Market Reaction

The initial reaction was a mixed one with USD/CAD experiencing some whipsaw price action before Canadian Dollar strength took over pushing USD/CAD down 30 pips to trade 1.3675.

USD/CAD M15 Chart, June 4, 2025

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Source: TradingView.com

Canadian Swaps Market sees 46% chance of July rate cut and prices in 36 basis points of additional easing in total this year, down from 42 basis points before the policy decision.

BoC press conference to begin shortly….

Technical Analysis - USD/CAD To Follow

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