BoC Seen on Hold Amid Core Inflation and Trade Tensions

The Bank of Canada (BoC) is expected to keep its policy rate unchanged at 2.25% for a seventh consecutive meeting on Wednesday. The BoC's decision comes as the country's core inflation nears 2%, providing policymakers with room to stand pat and cushion economic activity against US-Canada trade tensions.

According to Brown Brothers Harriman's (BBH) Elias Haddad, market pricing of 75 bps of BoC hikes over twelve months is too aggressive. This implies scope for a dovish repricing, which could lead to the USD/CAD moving higher towards 1.4000.

Haddad points out that the BoC has highlighted its willingness to cut the policy rate further in case of significant new trade restrictions imposed by the US on Canada. However, Canada's favorable labor market conditions argue against a rate cut.