Bank of Canada Holds Rates Steady Amid Ongoing Trade Uncertainty

The Bank of Canada is expected to keep interest rates on hold at 2.25% during its upcoming meeting, according to ING's Francesco Pesole. He sees very low risk of a surprise hike despite the firmer headline Consumer Price Index (CPI) and solid economic growth.

While the CPI rose back to 3.0% in July, core inflation remains well anchored around 1.9-2.0%. Pesole warns that trade tensions with the US pose significant risks for Canada, combined with a bullish Dollar view, which sees USD/CAD potentially extending higher towards 1.400 this month.

The Bank of Canada has looked at tariffs as a dampening factor for activity and jobs, but despite retaliatory tariffs from Canada, core inflation remains low, arguing against a hawkish shift just yet.