Bank of Canada Deliberations Released as Federal Reserve Decision Looms

The Bank of Canada's July policy meeting deliberations were released today, just before the Federal Reserve announces its decision. The Canadian Dollar has reacted little to this development, holding a range of barely 30 pips beneath 1.4100. This stability follows last week's White House order imposing 50% duties on various Canadian goods.

The Bank of Canada identified two major risks affecting the Canadian economy: upside inflation from the war and downside growth from US trade policy. Since the meeting, both risks have already materialized. The four-day stand-down in the Gulf has broken overnight, with US forces intercepting an Iranian missile attack and striking Iran-aligned militias in Iraq alongside Saudi forces.

The Bank of Canada's deliberations also highlighted a widening bond-yield differential between the US and Canada as a key driver of Canadian Dollar weakness. With US yields having risen on strong data while Canadian yields barely moved, this has led to a depreciation of the Canadian Dollar. The July projection assumes the Canadian Dollar averages around 71 US cents over the horizon, but spot is already there rather than above it.