Bank of Canada rate decision: Hold at 2.25% as expected

The Bank of Canada held its policy rate steady at 2.25%, in line with market expectations, as policymakers assess persistent inflation pressures against slowing economic growth. The decision reflects a delicate balancing act, with the central bank signaling data dependence that keeps the door open for future hikes if inflation resilience persists, supporting the Canadian dollar. Rate differentials and yield spreads remain key drivers for CAD, particularly against the USD, while Canadian bank stocks are sensitive to prolonged elevated rates boosting net interest margins. Markets will focus on the upcoming CPI report for confirmation that inflation is sustainably cooling toward the 2% target, which could determine whether the BoC resumes tightening or shifts toward cuts.

The Canadian Dollar (CAD) is tightly correlated with oil prices. BoC rate decisions, Canadian CPI, WTI inventory reports, and OPEC+ decisions all move USD/CAD intraday. Winter fuel demand amplifies oil-CAD correlation Q4/Q1.

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