Economists at TD Securities discuss the Bank of Canada (BoC) interest rate decision and its implications for the USD/CAD pair.

Hawkish (10%)

50 bps Hike. BoC lifts overnight rate to 4.75%, maintains forward guidance. Statement strikes a hawkish tone, flagging resilient growth, tight labour markets, and persistent core inflation pressures. 2023 GDP revised higher in Jan MPR as lower energy prices drive downgrade to CPI projection. USD/CAD 1.32.”

Base Case (55%)

“25 bps Hike. BoC lifts overnight rate to 4.50%, maintains forward guidance. Statement strikes balanced tone, noting resilient Q4 growth and labour market strength alongside significant consumer headwinds. 2023 GDP unchanged in Jan MPR as CPI revised lower. USD/CAD 1.34.”

Dovish (35%)

“Rates unchanged at 4.25%. Bank passes on January hike, citing inflation progress, slower growth, and already restrictive policy stance. Dovish statement puts emphasis on 2023 growth headwinds as MPR projections for GDP and CPI revised lower. Policy statement maintains guidance from December, leaving door open for future hikes. USD/CAD 1.35.”

See – BoC Preview: Forecasts from eight major banks, edging towards a final rate hike