BUZZ-COMMENT-BoC guidance matters more to CAD than policy action

Jan 28 (Reuters) - The Bank of Canada is widely expected to cut rates further on Wednesday, albeit at a slower pace of 25bps to take its main policy rate to 3% and thus move into the bank’s estimated neutral rate range of 2.25-3.25%.

However, given the backdrop of potential tariffs being imposed on Canadian goods as soon as Feb. 1, the BoC’s guidance is likely to matter more to the Canadian dollar than the policy action.

Among the key focal points will be whether the BoC opens the door to moving rates below neutral to stem any impact from punitive tariffs should they be imposed. Confirmation that a sub-neutral policy rate would be on the table could see USD/CAD above 1.45 in short order. Keep in mind that markets are pricing in 60-65bps of easing by year-end.

That said, the BoC could be hesitant to signal such action. Firstly, tariffs have not yet been implemented. Elsewhere, the preferred measures of core inflation – 3 month trimmed and median CPI – have drifted higher in recent moves. Should CAD find a bid on the back of any hawkish elements to the BoC’s rhetoric, however, gains are likely to be limited ahead of U.S. President Donald Trump’s self-imposed tariff deadline.

For more click on FXBUZ