BoC holds the line as the Middle East dominates the macro landscape
The Bank of Canada has left its overnight target rate unchanged at 2.25%, a fifth consecutive hold that matched both consensus and our own expectations.
With the decision itself never in doubt, attention instead fell on the accompanying statement and Governor Macklem's press conference, and on this front the message was a familiar one:
the Governing Council continues to look through the war's near-term impact on headline inflation, but "will not let higher energy prices become persistent inflation", standing ready to respond as needed.
Importantly, Macklem largely looked through May's blockbuster 88k jobs gain, at least for the time being, observing that employment is little changed since the start of the year. He did concede, however, that the longer oil prices stay elevated, the greater the risk that costs bleed into broader inflation, requiring a policy response.
A note toward rate hikes skews hawkish at the margin, but absent a sustained turnaround in hard data, we would be cautious against drawing any strong conclusions.
The immediate market reaction largely reflects this view too. Having printed fresh year-to-date highs on Tuesday, USDCAD has drifted lower after a softer-than-expected core US CPI, but with little extra impetus after this latest decision. Looking ahead, the path for the loonie remains hostage to oil prices, Middle East headlines, and a Fed meeting next week under new Chair Warsh.