We expect BOC to cut rates by 50 bps in it’s 23rd Oct meeting along with a dovish outlook. Inflation has evolved largely in line with the BoC’s expectations. Cooling labor markets and excess supply in the economy have shifted its focus to “symmetric risks” from upside risks to inflation alone, cementing the case for easing further. Lacklustre growth, headwinds to consumption from elevated rates, and risks of inflation undershooting are likely to tilt the committee towards voting for a larger cut. A 50bp October cut, followed by five 25bp consecutive cuts is our base case. Our terminal rate forecast is 2.50%, which the BoC is likely to reach in June 2025. We expect CAD to test 1.40 odd levels against USD soon from its current level of 1.38 as markets recognise that BOC is on a faster rate cutting trajectory than Fed. We expect Fed to cut rates by 25 bps each in the next 4 meetings till Mar’25 & then remain on pause for a long period of time. Hence by policy rate differential, CAD should depreciate significantly against USD. Even on growth rate differential, CAD should depreciate against USD significantly.
