• USD/CAD clings to gains near 1.3850 as the BoC reduces its key borrowing rates by 50 bps to 3.75%, as expected.
• The BoC maintains its growth guidance for this year at 1.2%.
• The US Dollar gains on multiple tailwinds.

The USD/CAD pair remains firm near 1.3850 as the Bank of Canada (BoC) has reduced its key borrowing rates by 50 basis points (bps) to 3.75%. This is the fourth straight interest rate cut by the BoC in a row. However, the size by which the BoC has cut interest rates on Wednesday is larger-than-usual.

The BoC was widely anticipated to deliver an outsize interest rate cut as officials worry that inflationary pressures in Canada could remain lower below 2% amid growing risks of a downturn. Risks to BoC’s dual mandate have not shifted to employment. The Unemployment Rate remains above 6% since February, which should be under 5% theoretically.

The BoC may continue lowering interest rates further if the jobless rate remains elevated. The Canadian swaps market sees roughly a 25% chance of another 50-basis point rate cut in December. Meanwhile, the central bank has left its growth rate for this year unchanged at 1.2%. After the interest rate decision, BoC Governor Tiff Macklem said that their focus is to maintain stable, low inflation.