Canadian Dollar: Trade war complicates BoC path – Standard Chartered

Standard Chartered economist Dan Pan anticipates the Bank of Canada (BoC) maintaining its policy rate at 2.25% and postponing a 25 basis point cut to December, citing a rebound in Q2 growth that diminishes the requirement for immediate easing. While acknowledging potential downside growth risks due to recent US tariffs, the report also emphasizes the high likelihood of trade de-escalation and questions the pricing of BoC rate hikes by mid-2027.

The BoC is now expected to keep the policy rate unchanged at 2.25% and delay the cut to December, as growth rebound should lessen the need for immediate monetary easing. Despite recent tariff escalation, policymakers may opt to wait for more data to assess the impact of new tariffs on growth and inflation. An insurance cut could be considered by the BoC next week to protect the economy from an impending tariff shock.

Market expectations now stand at around 65 basis points of hikes by mid-2027, a figure deemed excessive. Geopolitical risks, including the Pentagon's readiness for potential strikes against Iran and hawkish Federal Open Market Committee (FOMC) minutes, continue to support the US Dollar, which may further weaken the AUD/USD pair.

USD/JPY declines below 158.00 in the Asian session due to speculation of authorities intervening to support the Japanese Yen. Meanwhile, the US Dollar eases from near an 18-month high on profit-taking, despite hawkish FOMC minutes and the risk of further Middle East tensions. Gold recovers from its overnight decline above $4,100 as the US Dollar retreats, but further recovery is doubtful due to hawkish FOMC minutes and potential US attacks on Iran, which could weigh on gold prices.

Ethereum researcher Justin Drake has warned the crypto industry to prepare for a potential breakthrough that may threaten the cryptographic systems securing digital assets, urging a shift to "bunker mode."