Bank of Canada Governor Tiff Macklem said he expects rates to be cut next year. This is a surprise statement by Macklem. Offering a timeline for rate cuts appears inconsistent with the BoC claim that it ‘remains prepared to raise the policy rate further if needed’ and likely validates market’s pricing for 100 bps of easing next year.

Despite our view of a Dollar decline and outperformance of pro-cyclical currencies next year, we expect the CAD to underperform other commodity currencies as the BoC cuts rates aggressively (we estimate 150 bps in 2024) on a grim economic outlook and the loonies suffers from its correlation with US economic data.