BoC Dovish Tone Fails to Boost CAD Amid US Tariff Uncertainty

The Bank of Canada (BoC) is expected to adopt a dovish tone and provide limited guidance as trade tensions with the US rise, according to TD Securities' macro team. Andrew Kelvin and Jayati Bharadwaj believe that the BoC will be sidelined in this situation, leaving the Canadian Dollar (CAD) exposed as a funding currency.

As trade tensions escalate between Canada and the US, the BoC meeting is likely to take center stage, with markets looking for updates on their thinking after US tariffs. The TD Securities team expects a dovish tone from the Committee but limited guidance to keep options open.

The CAD is vulnerable as a funding currency in this environment, according to the report, but USD/CAD struggles to hold above 1.40 in a bearish USD environment. TD Securities maintains their 1.39 year-end forecast for USD/CAD.