BoC: No policy changes expected as Canadian dollar remains steady – Societe Generale

BoC Expected to Hold Rates Steady Amid Economic Uncertainty

Analysts at Societe Generale anticipate that the Bank of Canada will maintain its policy rate at 2.25%, even as employment figures weaken and inflation slows. Following recent geopolitical tensions involving Iran, market participants are now factoring in approximately 33 basis points of rate hikes by the end of the year. The outlook suggests that short-term Canadian bond yields may decline, while the USD/CAD exchange rate is likely to hover around 1.3695, influenced primarily by the Federal Reserve's decisions.

Stable Policy Rate and Market Adjustments

The Bank of Canada is broadly expected to keep its benchmark rate unchanged at 2.25%, which is considered the lower boundary of its neutral range. Despite a notable drop in employment and headline inflation falling to 1.8% year-over-year in February, these developments are not expected to prompt a shift in the central bank's stance.

Money markets now anticipate about 33 basis points of tightening by year-end, a change from previous expectations of no movement before the Iran conflict. Updated economic forecasts will be released at the BoC's April meeting. Although oil price shocks were not highlighted as key inflation risks in January's Monetary Policy Report, this assessment will be revisited. Earlier projections had inflation averaging 2.0% in 2026, based on lower crude prices.

USD/CAD Technical Outlook

The USD/CAD currency pair is testing the upper limit of a steeper downward channel near 1.3750–1.3800, which aligns with the 200-day moving average and the top of a recent consolidation phase. A short-term correction is possible, with 1.3480 marking a significant support level at the lower end of the current range.

The Canadian dollar is expected to remain stable around 1.3695, close to its 50-day moving average, as the Federal Reserve continues to play a dominant role. Technical indicators remain neutral, with the 100-day and 200-day moving averages intersecting at 1.38.

• If USD/CAD moves above the 200-day moving average, resistance may be found at 1.3860 and at the January highs between 1.3930 and 1.3960.

This article was generated with assistance from an AI tool and reviewed by an editor.