Synopsis:

Danske expects the BoC to cut its policy rate by 25bp to 3.00% at Wednesday's meeting. While business surveys show optimism for sales growth, concerns about US trade policy and excessive supply are expected to dominate the BoC’s outlook.

Key Points:

1. BoC Rate Cut Expected:

   • Danske forecasts a 25bp rate cut, aligning with market and analyst expectations.
   • The BoC is likely to maintain its focus on excessive supply as a key concern in its Monetary Policy Report (MPR).

2. Business Optimism and Trade Concerns:

   • The BoC’s Q4 Business Outlook Survey indicates firms anticipate stronger sales growth in the coming year.
   • However, uncertainty around US trade policy poses a risk to future activity.

3. Impact on CAD FX:

   • Near-term USD/CAD movement could favor a lower cross due to stretched short CAD positioning and potential fading of the USD rally.
   • A hawkish tone from the BoC, despite the cut, could further support CAD strength.

Conclusion:

While the BoC is expected to lower rates, the tone of its rhetoric and US-related developments will be critical for CAD FX. A hawkish shift or easing US trade policy uncertainty could offer upside for the Canadian dollar.