Economists at MUFG Bank analyze CAD's outlook ahead of the Bank of Canada decision.

USD/CAD seen higher in 2024 as economic weakness is more pronounced in Canada than elsewhere

After a long pause the BoC in June hiked again and market pricing implies a 75% probability of another hike today. We remain unconvinced of the need to move. Yes, the jobs market was strong (59.9K increase in employment vs 20K expected) but wage inflation was weak with the hourly wage YoY rate falling from 5.1% to 3.9%. Does the BoC need to hike with the core Median YoY CPI rate down at 3.9% with further tightening still to feed into the real economy? 

Any benefit today for CAD from a rate hike is unlikely to be sustained over the medium term. 

We now forecast little change in USD/CAD through to year-end even as the Dollar weakens across G10 and then see USD/CAD higher in 2024 as economic weakness is more pronounced in Canada than elsewhere. 

See – BoC Preview: Forecasts from eight major banks, enough evidence to pull the trigger on another 25 bps rate hike