BoC Holds Rates Steady for Sixth Consecutive Meeting, Improving Economic Outlook May Continue to Support CAD

Summary:

The Bank of Canada (BoC) kept its benchmark interest rate unchanged at 2.25% for the sixth consecutive meeting, in line with broad market expectations. Although global trade uncertainties and geopolitical risks remain elevated, the Canadian economy has shown gradual signs of stabilization and recovery, while inflationary pressures have eased alongside energy price fluctuations. Against the backdrop of the BoC maintaining a cautiously optimistic stance and oil prices retaining medium-term support, USDCAD remains vulnerable to further downside in the medium term.

Sell USDCAD

EXP

Trading

1.40194

ENTRY

1.36450

TGT

1.43800

1.40188 -0.00218 -0.16%

Point

Flat

1.36450

TGT

CLOSING

1.40194

ENTRY

1.43800

Fundamentals

The Bank of Canada announced on Wednesday that it would maintain its policy rate at 2.25%, marking the sixth consecutive meeting without a rate adjustment since last year. The policy statement indicated that policymakers believe the current monetary policy stance remains appropriate to support economic recovery while guiding inflation gradually back toward the 2% target.

In its latest Monetary Policy Report, the BoC noted that after a period of weak performance over the past year, the Canadian economy has begun to show signs of improvement. Although overall growth remains moderate, economic activity is gradually recovering, with growth expected to strengthen over the coming quarters. Meanwhile, as the inflationary impact from previous energy price increases continues to fade, headline inflation is expected to gradually decline from recent highs.

According to the latest projections, the BoC expects annualized economic growth to reach 2.5% in the second quarter and approximately 1.5% in the third quarter. While the central bank lowered its 2026 growth forecast to 0.7% due to weak economic performance earlier in the year, it raised its growth forecasts for 2027 and 2028 to 1.8%, reflecting improved confidence in the medium- to long-term economic outlook.

On inflation, the BoC expects average inflation to reach 2.5% in 2026, slightly above its previous forecast of 2.3%, before returning to the central bank’s 2% target in early next year. The BoC also emphasized that it will continue monitoring economic resilience and inflation trends, while remaining prepared to adjust monetary policy if necessary.

From a market perspective, the latest rate decision was largely expected, with the central bank continuing to emphasize a “patient and data-dependent” approach. Compared with June, the BoC adopted a slightly more optimistic tone regarding the economic outlook. Although the labor market remains relatively weak, economic activity has shown marginal improvement, while underlying inflation pressures outside the energy sector remain largely contained.

It is worth noting that recent disruptions and reopenings surrounding the Strait of Hormuz have not resulted in severe economic consequences, but the events have been significant enough to keep markets on alert. The developments have contributed to a roughly 10% increase in crude oil prices recently, creating some upside risks to the oil price assumptions underlying the BoC’s forecasts. As one of the world’s major energy exporters, Canada typically benefits from stronger oil prices, which improve trade conditions and provide support for the Canadian dollar.

Given that the Canadian economy remains below full capacity and core inflation is approaching the central bank’s target level, markets broadly expect the BoC to keep interest rates unchanged for the remainder of the year while waiting for additional economic data to guide future policy decisions.

BoC Holds Rates Steady for Sixth Consecutive Meeting, Improving Economic Outlook May Continue to Support CAD_1

Technical Analysis

From a technical perspective, USDCAD’s decline from the 1.4249 high can be viewed as a corrective move following the previous rebound from 1.3480. The pair has now fallen below its short-term moving average system, indicating that upward momentum is gradually weakening and that the medium-term trend is shifting back toward the downside.

On the daily chart, the MACD indicator has formed a bearish crossover and remains below the zero line, suggesting that bearish momentum continues to dominate. Meanwhile, the Relative Strength Index (RSI) has declined toward the neutral 50 level, indicating that market sentiment is gradually shifting from neutral toward bearish.

In the short term, the 1.3965 region represents an important support area, which may limit further rapid declines and trigger a technical rebound. However, as long as USDCAD fails to regain and hold above 1.4170, any recovery is more likely to be viewed as a selling opportunity rather than a signal of a trend reversal.

If the rebound loses momentum, USDCAD is expected to resume its downward movement and retest the previous breakout area around 1.3645. A decisive break below this level could open the door to further downside potential.

Overall, supported by improving Canadian economic expectations, the BoC’s relatively hawkish wait-and-see stance, and medium-term support from oil prices, USDCAD is expected to maintain a bearish bias over the medium to long term.

Trading Recommendation

Direction: Sell

Entry: 1.4060

Target: 1.3645

Stop Loss: 1.4380

Valid Until: August 15, 2026, 23:55

Key Support Levels: 1.3996, 1.3951, 1.3898

Key Resistance Levels: 1.4078, 1.4171, 1.4249

Risk Warnings and Investment Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading with strategies. Following any strategies or investment methodologies is the potential for loss. The content on the site is being provided by our contributors and analysts for information purposes only. You alone are solely responsible for determining whether any trading assets, or securities, or strategy, or any other product is suitable for you based on your investment objectives and financial situation.

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Eva Chen

Analysts

Master of Economics, 8 years in the financial industry, CFA holder, joined HSBC (Hong Kong) Bank in 2013 after graduating from the University of California, USA in the Investment Research and Markets Department. With years of financial market experience and trading experience, having provided excellent investment advice to many brokerages, entity derivatives importers and clients in Greater China.

Rank

Articless

2673

Win Rate

60.51%

P/L Ratio

0.67

Focus on

XAUUSD, WTI, GBPUSD

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