June 4 (Reuters) - The Bank of Canada is due to announce its latest rate decision, where expectations are broadly in favour of a pause. Of 26 economists polled by Reuters, 20 are calling for a hold, which is roughly in-line with market pricing. Though given that there is a one-in-four chance priced for a cut, a decision to hold would likely spark a knee-jerk reaction higher in the Canadian dollar. As shown in the table below, data since the BoC's April meeting have generally surprised on the topside of expectations. Most notably, underlying inflation, which is now above 3%. This is important given that the members who favoured a cut at the April meeting cited muted near-term inflation risks. Thus, this would argue for policymakers to take a wait and see approach.
Meanwhile, with the policy rate at the midpoint of the bank's estimated neutral rate range of 2.25-3.25%, there is likely more resistance to cutting rates further at the current pace. The predominant argument that could sway policymakers into voting for a rate cut would be the latest trade war escalation: U.S. President Donald Trump doubled U.S. tariffs on imported steel and aluminium from 25% to 50% on June 4. Overall, risks favour a hold, which in turn opens the door for an initial bid in the Canadian dollar, thus a move to 1.35 remains on the cards for USD/CAD.
CA data since April


BoC pricing

(Justin McQueen is a Reuters market analyst. The views expressed are his own.)