Trade negotiations remain unresolved, and expectations of a rate cut by the Bank of Canada are intensifying

According to the latest Reuters survey, the delay in trade negotiations between Canada and the United States has become a key factor affecting the central bank’s monetary policy. Due to the uncertainty in the negotiation timetable, the likelihood of the Bank of Canada further cutting interest rates has increased.

Foreign Exchange Market Adjusts Expectations for CAD Movement

Between November 28 and December 3, the latest forecasts from 33 foreign exchange analysts show a downward adjustment in the outlook for the Canadian dollar’s appreciation. Over the next three months, the CAD is expected to appreciate by 0.3%, with a target rate of 1 CAD to 1.39 USD, up from the previous month’s expectation of 1.37. Looking at the full year, the CAD is projected to appreciate by 2.5% over 12 months, with an expected exchange rate of 1.36, compared to the previous forecast of 1.35. Overall, the appreciation potential of the CAD in the coming year has narrowed compared to earlier expectations.

Federal Budget Weak, Need for Easing Policies to Stimulate Economy

Citi Macro North America economist Bradley Sanders pointed out that the current federal budget appears somewhat weak, and reaching a new trade agreement with the US still requires several months, which means that relying solely on fiscal policy is unlikely to drive economic recovery. To effectively kick-start growth, it will inevitably depend on the central bank’s accommodative monetary policy to provide support.

Central Bank Rate Cut Timeline Clarifies

Based on the above assessment, the institution predicts that the Bank of Canada will proactively lower its policy interest rate to below the so-called neutral zone around mid-next year, once core inflation indicators return close to the target level. This indicates that the rate cut cycle is highly likely to begin, and the market should prepare for the central bank’s easing policy.