Governor Macklem doubled down on the Bank of Canada's commitment to its inflation target in Thursday's speech. Macklem's hawkish remarks do not bode well for the CAD, in the view of economists at TD Securities.

USD/CAD dips should be bought

“Governor Macklem pushed back against a dovish pivot. Macklem downplayed the recent improvement in headline CPI and global inflation pressures and put more emphasis on domestic factors and core inflation strength. He also repeated that long-term inflation expectations are at risk and that it was too soon to warrant a ‘decision-by-decision’ approach to rate hikes.”

“Macklem's comments should reinforce execrations for a 50 bps rate hike at the October meeting, but we are reluctant to extrapolate them much further given the short shelf-life of central bank comments in this environment, especially with economic data starting to cool. We continue to look for a 4.25% terminal rate.”

“Governor Macklem put on a bit of tough talk, though he did not do a very good job at sounding all that convincing. It sounds like even though they are not yet willing to ‘pivot’, that it may not be far away. Another anchor of any sort of CAD support has chipped away.”

“We are even stronger believers that USD/CAD dips should be bought. 

“Currently, we look for 1.40 this year, but this does not necessarily mean it will be a ceiling.”