The Bank of Canada (BoC) is set to deliver “only” a 50 basis points rate hike on Wednesday. Still, economists at the Bank of America stick to their USD/CAD year-end forecast at 1.36.

BoC to slow down the pace 

“We expect the BoC to slow down the pace and hike the overnight rate by 50 bps to 3.75%. Inflation and inflation expectations remain high and the labor market is still tight, so another higher-than-normal rate hike is very likely. Still, the risk of another 75 bps hike is relatively high.”

“We expect the actual delivery of a BoC downshift to allow CAD rates to continue to outperform those of the US. USD/CAD appeared to be overbought in September due to the August inflation surprise and broad risk-off sentiment in the market. The latest inflation prints should provide some short-term tailwind for CAD ahead of the BoC meeting.”

“We keep our year-end forecast at 1.36 for USD/CAD.”