A potential prolonged pause in the BoC’s tightening cycle may open the door to some risk appetite-related upside for the CAD, in the view of economists at HSBC.

The BoC signals a pause in rate hikes

“With the BoC now potentially pausing its rate hikes, the risk of over-tightening has retreated and the risk of domestic recession has reduced, somewhat supporting the CAD.”

“More broadly, the BoC provides the first example of an end, albeit still a conditional one, to a developed market’s tightening path in the current cycle. Others are likely to join it in the coming months, building a ‘risk on’ narrative that the headwind to activity from global rates is not set to intensify further. This should support the CAD.”