On April 16, 2025, market experts are widely expecting the Bank of Canada (BoC) to keep its policy rate steady at 2.75%, halting a series of rate cuts that had taken place over the previous months. This decision comes amid rising inflation and ongoing concerns about U.S. trade policies, particularly tariffs.
The Canadian dollar (CAD) has strengthened recently, climbing from its monthly lows near 1.4400 to around 1.3840 against the U.S. dollar (USD). This appreciation coincides with the return of U.S. President Trump to the Oval Office, with traders closely watching his stance on tariffs and trade relations.
Governor Tiff Macklem and his team at the Bank of Canada are taking a cautious approach due to global uncertainty, largely driven by the unpredictable nature of U.S. trade policies. In a recent statement, Macklem acknowledged that the bank’s monetary policy was being adjusted to reflect the uncertainty surrounding U.S. tariffs, which have had an unpredictable impact on global markets.
The BoC is also responding to rising inflation, which has surpassed the central bank’s target. In February, Canada’s inflation rate hit a 2.6% high, the highest in eight months. The latest business outlook survey, released on April 7, 2025, showed that many companies are holding back on investment and hiring due to the growing risks of a recession, fueled by concerns about potential tariffs and retaliatory measures.
Canadian businesses are also bracing for higher costs, with 65% of companies anticipating a rise in input prices due to tariffs. Consequently, 40% of companies plan to increase their prices to offset higher costs. This reflects growing inflationary pressures in Canada, which the central bank must address as it navigates a more uncertain economic environment.
As for the CAD/USD exchange rate, analysts suggest that the recent move below the key 200-day moving average for USD/CAD could signal further weakness for the U.S. dollar. Senior FXStreet analyst Pablo Piovano noted that the Canadian dollar could continue its recovery, with USD/CAD potentially testing lows near 1.3838, last seen on April 11, 2025.
Piovano also pointed out that while USD/CAD is currently trading in oversold conditions, a technical rebound cannot be ruled out. However, the ongoing bearish trend in the pair could strengthen further if the current sentiment persists.
The Bank of Canada’s monetary policy decision is expected at 13:45 GMT on Wednesday, followed by a press conference from Governor Macklem at 14:30 GMT. Market participants will be watching closely for any new insights into how the bank plans to handle the risks posed by U.S. trade policies.
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