USD/CAD: MUFG says BoC's cautious stance maintains current range

Canadian Dollar Holds Steady Amid Global Uncertainty

Derek Halpenny from MUFG notes that the Canadian Dollar has maintained its strength since the onset of the conflict, largely due to favorable oil-related trade conditions. He anticipates the Bank of Canada will keep interest rates unchanged and issue a cautious statement, highlighting the unpredictable nature of inflation driven by energy prices. MUFG expects the BoC may consider rate cuts before the end of the year, with USD/CAD likely to remain stable unless the conflict intensifies or oil prices surge.

Bank of Canada Expected to Maintain Rates as Economic Risks Grow

Alongside the FOMC meeting later today, the Bank of Canada is set to announce its monetary policy decision at 13:45 GMT. Given the rapidly shifting global landscape, the BoC is likely to adopt a prudent tone, emphasizing significant uncertainty and the need for more time to evaluate how rising energy costs could affect inflation.

The sustainability of the Canadian Dollar's current performance remains uncertain. The BoC's decision follows a disappointing jobs report, with employment falling by 84,000 in February—primarily due to a loss of 108,000 full-time positions. This marks the largest decline since April 2020, at the onset of the pandemic.

MUFG continues to believe that the Trump administration will seek a resolution to de-escalate tensions within the next two weeks, which could allow the BoC to consider easing by year-end. However, today's message is expected to be clear: the BoC requires additional time to fully understand the impact of higher energy prices before making any policy decisions.

Should this outlook hold, USD/CAD is likely to trade within a narrow range. If the conflict persists and crude oil prices climb above $100, the Canadian Dollar's support from favorable trade terms may weaken, especially if economic risks in North America rise and equity markets suffer.

(This article was produced with assistance from an AI tool and reviewed by an editor.)