The Bank of Canada (BoC) announced a 25 basis points cut in its policy rate, aligning with expectations, during its event on Wednesday. This decision marks the first rate cut after maintaining rates at 5.00% over six consecutive meetings.
Amidst a broader consolidation phase, the Canadian Dollar (CAD) has gradually depreciated against the US Dollar (USD) since the year began. In April, domestic inflation continued its downtrend, with the Core CPI dropping below the 2.0% threshold to 1.6% year-over-year.
The anticipated rate cut comes as inflation persists below 3% since January. While the BoC is expected to maintain a cautious stance, it may show flexibility given ongoing inflation declines. BoC Governor Tiff Macklem has hinted at an impending rate cut, citing decreasing inflation and Canadians' eagerness for such action.
The BoC's policy decision, scheduled for Wednesday, June 5, may primarily impact the Canadian currency through the bank's message rather than the rate cut itself. A conservative approach could support CAD, leading to a potential dip in USD/CAD. Conversely, a hint of further rate cuts may trigger a significant drop in the Canadian Dollar.
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