Economists at Société Générale analyze CAD outlook ahead of the Bank of Canada Interest Rate Decision.

BoC to hike 25 bps

In Canada, another 25 bps increase to 5% is in the balance today, following a spectacular gain of 110K in full-time employment in June. However, wage growth did slow sharply, to 3.9% YoY, as more jobseekers entered the labour force. 

Whether rates are hoisted to 5% will depend on whether the central bank believes inflation is still on target to return to target by the middle of 2024. The BoC pointed out in June that three-month measures of core inflation have been running in the 3.5-4% range for several months and that excess demand persists. 

We are upbeat on the outlook for the CAD over the medium term, based on solid growth fundamentals and attractive FX valuation.