BoC’s Macklem Drops a Bombshell: Brace Yourself for Unseen Rate Hikes That Could Shake Your Portfolio to Its Core!

Ever wonder what it really means when a central bank hits the pause button on interest rates? Governor Tiff Macklem recently did just that, holding the policy rate steady at 2.25%, but his Q&A session afterward revealed that this is far from a simple “wait and see” stance. With the economic rebound’s durability under question—courtesy of fresh US trade moves and the ongoing turmoil in the Middle East pushing energy prices sky-high—Macklem’s remarks remind us that the Bank of Canada is navigating a complex maze of risks. Inflation, especially tied to gas and oil, remains stubbornly high, and while the BoC isn’t tipping its hand on immediate future hikes, the possibility of consecutive rate increases looms if inflation refuses to relent. So, what does this mean for markets and the Canadian Dollar? Buckle up, because the landscape is shifting, risks are repricing, and the Bank is ready to adjust its game plan as needed. Curious to dive deeper into the BoC’s latest moves and what’s next on the horizon? LEARN MORE

Governor Tiff Macklem took questions from reporters, offering markets a clearer sense of how the central bank was thinking. His remarks followed the widely expected decision to keep the policy rate on hold at 2.25%.

BoC press conference key highlights

Uncertainty about the sustainability of the economic rebound has increased with new US trade actions.

The ongoing conflict in the Middle East is keeping energy prices higher for longer, increasing the upside risks to the inflation outlook.

If the tariffs remain in place, they will hit targeted sectors hard, but we do not expect them to have a large direct impact on the overall level of economic activity.

Inflation is very concentrated in gasoline and oil prices.

Risks are shifting, and we are prepared to adjust monetary policy as needed.

We have to keep our eye on inflation; it’s running too high.

Where we go on rates is really going to be guided by our inflation forecasts and risks around that.

Monetary policy is never about one risk or one piece of data.

Recent bond rout shows more than one thing happening at once.

Central banks’ tolerance for higher inflation is limited.

We are seeing some spillover of global bond yields into Canada; we will take that into account.

It is important to distinguish between volatility and disfunction or instability.

What we see happening right now is a repricing of risk, not a situation where liquidity is drying up.

Multiple rate increases could be needed if we feel inflation is a problem.

If monetary policy doesn’t do what it needs to do to achieve its objectives, then markets will reprice.

This section below was published at 13:45 GMT to cover the Bank of Canada’s policy announcements and the initial market reaction.

The Bank of Canada (BoC) left its policy rate unchanged at 2.25% on Wednesday, in line with market expectations. Attention now shifts to Governor Tiff Macklem’s upcoming press conference at 14:30 GMT, where investors will be looking for additional details on the decision and any clues about the future path of monetary policy.

BoC policy statement key highlights

The Bank of Canada holds the overnight interest rate at 2.25%.

The Middle East conflict and US tariff situations remain fluid.

Demand for labour remains subdued, and indicators point to continued excess supply in the economy.

Uncertainty is high, and new US tariffs and threats of further action pose risks to the sustainability of the recovery.

Upside risks to inflation have increased, while new tariffs make growth prospects more uncertain.

Market reaction

The Canadian Dollar (CAD) makes a U-turn and trades with decent gains vs. the Greenback on Wednesday, prompting USD/CAD to return to the sub-1.3900 region in the wake of the central bank’s interest rate decision.

Canadian Dollar Price Today

The table below shows the percentage change of Canadian Dollar (CAD) against listed major currencies today. Canadian Dollar was the strongest against the New Zealand Dollar.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		-0.01%	0.11%	-0.92%	-0.07%	-0.31%	0.98%	0.16%
EUR	0.01%		0.12%	-0.88%	-0.06%	-0.29%	0.96%	0.17%
GBP	-0.11%	-0.12%		-1.01%	-0.19%	-0.42%	0.81%	0.04%
JPY	0.92%	0.88%	1.01%		0.84%	0.60%	1.87%	1.07%
CAD	0.07%	0.06%	0.19%	-0.84%		-0.24%	1.02%	0.23%
AUD	0.31%	0.29%	0.42%	-0.60%	0.24%		1.25%	0.48%
NZD	-0.98%	-0.96%	-0.81%	-1.87%	-1.02%	-1.25%		-0.78%
CHF	-0.16%	-0.17%	-0.04%	-1.07%	-0.23%	-0.48%	0.78%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Canadian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent CAD (base)/USD (quote).

This section below was published as a preview of the Bank of Canada’s (BoC) monetary policy announcements at 09:00 GMT.

The Bank of Canada is expected to keep its interest rate at 2.25%.
The Canadian Dollar has given away part of its recent August gains.
Markets pencil in just over 2 bps of extra tightening by year-end.

The Bank of Canada (BoC) is widely expected to keep its policy rate unchanged at 2.25% on Wednesday. This would be the seventh consecutive gathering with the central bank sitting on the fence.

The BoC left its policy rate unchanged at 2.25% in July, as widely anticipated. The statement and Governor Tiff Macklem said persistent increases in Oil prices could require consecutive rate hikes, although he stressed that this was not the bank’s base case.

According to the statement, the BoC sharply downgraded its Canadian growth forecast for 2026 to 0.7% from 1.2%, although the near-term picture has improved. The bank now expects annualised GDP growth of 2.5% in Q2, up from the 1.5% projected in April, before easing to 1.5% in Q3. Macklem described Q2 as “pretty solid” and suggested the improvement could prove sustainable, while acknowledging uncertainty about the recovery’s durability. Indeed, economic growth is then expected to strengthen to 1.8% in both 2027 and 2028, even amid a persistent output gap, signalling that excess capacity remains in place.

Inflation, meanwhile, has been revised higher, with the BoC now expecting 2.5% in 2026, up from 2.3%, before easing to 2% in 2027 and edging back to 2.1% in 2028. Oil prices remain the main upside risk to that outlook. Macklem warned that a renewed and sustained rise in energy prices that spilt over into broader inflation could require consecutive rate hikes, while stressing that the BoC would be less inclined to respond mechanically to a temporary Oil-price spike.

Inflation, however, remains the key watch point after all measures ticked higher in July. That said, the headline CPI rose by 3.0% in the year to July, above the previous month’s print of 2.8%. In the same direction, the BoC’s core reading rose to 2.3% from a year earlier. Furthermore, the bank’s preferred measures —CPI-Common, Trimmed and Median— increased by 2.7%, 1.9% and 2.0%, respectively, with almost all still above the goal.

When will the BoC release its monetary policy decision, and how could it affect USD/CAD?

The Bank of Canada will announce its policy decision on Wednesday at 13:45 GMT, followed by Governor Tiff Macklem’s press conference at 14:30 GMT.

Markets anticipate the central bank to maintain its current stance, with a projected tightening of just over 2 basis points by the end of 2026.

Pablo Piovano, Senior Analyst at FXStreet, points out that USD/CAD needs to clear both its provisional 100-day and 55-day SMAs at 1.3915 and near 1.4040, respectively, to attempt a move to the August top at 1.4080 (August 5), prior to the weekly peak at 1.4129 (July 28). Further up emerges the 2026 ceiling at 1.4248 (June 24).

If selling pressure increases, the immediate support comes at the critical 200-day SMA in the 1.3840 zone. A deeper retracement might expose a move toward the August floor at 1.3731 (August 21). Once cleared, there are no support levels of relevance until the May bottom at 1.3549 (May 1), Piovano says.

“Momentum seems to be potentially leaning toward extra gains,” he adds, noting that the Relative Strength Index (RSI) is rebounding further and flirting with the 47 level, while the Average Directional Index (ADX) around 29 suggests the underlying trend remains quite firm.

Economic Indicator

BoC Interest Rate Decision

The Bank of Canada (BoC) announces its interest rate decision at the end of its eight scheduled meetings per year. If the BoC believes inflation will be above target (hawkish), it will raise interest rates in order to bring it down. This is bullish for the CAD since higher interest rates attract greater inflows of foreign capital. Likewise, if the BoC sees inflation falling below target (dovish) it will lower interest rates in order to give the Canadian economy a boost in the hope inflation will rise back up. This is bearish for CAD since it detracts from foreign capital flowing into the country.

Canadian Dollar FAQs

The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.

The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.

The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.

While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.

Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.