Bank of Canada Holds Steady Amid Global Tariff Tensions and Economic Uncertainty

Today's expected range for the Canadian Dollar against the major currencies:

US Dollar        1.3670-1.3910

Euro                 1.5770-1.6020

Sterling            1.8310-1.8550

WTI Oil (opening level) $68.79

The CAD/USD is opening at 1.3790 ( 0.7252 )

As the Bank of Canada gets set to issue a new interest rate decision today, there is a growing sense that the cutting cycle might have already ended.

The BoC decided to keep rates steady in June, citing a Canadian economy that is "softer but not sharply weaker" and noting firmness in recent inflation data. The policy rate stands at 2.75%, which remains within the bank’s estimated neutral range for interest rates, set between 2.25% and 3.25%.

Trump's tariff agenda continues to be a significant global influence. Since his January return to the White House, he has dangled a slew of new levies that could ripple through global supply chains, and those threats will likely dominate Governor Tiff Macklem’s post‑meeting press conference.

The BoC's Q2 Business Outlook Survey (BOS), out on July 21, indicated that Canadian firms are worried about the worst-case tariff situation but are still hesitant to hire and invest. The BOS revealed that companies' short-term inflation predictions have returned to where they were a year ago, and businesses now see a recession scenario as less likely. Earlier this year, businesses were worried that US tariffs would hurt the economy, but so far the effects have mostly been seen in the steel, aluminium, and vehicle industries.

Headlines

·    U.S. and Chinese officials agreed to pursue extending their 90-day tariff truce after constructive talks in Stockholm. No major breakthroughs were announced, leaving the decision to extend the truce up to President Trump as the August 12 deadline nears. U.S. Treasury Secretary Scott Bessent indicated Trump is likely to approve the extension.

·    The UK indicated it will recognize the Palestinian state unless Israel agrees to a ceasefire in Gaza due to the humanitarian crisis there.

·    Australia June CPI rose 1.9% YoY, with the core, “trimmed mean” CPI up 2.1% vs. 2.4% in May. For the quarterly Q2 figures, CPI rose +0.7% QoQ and 2.1% YoY vs. 0.8%/2.2% expected, respectively and vs. 2.4% YoY in Q1, while the trimmed mean rose +0.6% QoQ vs. +0.7% expected and 2.7% YoY as expected, down from a 2.9% rate in Q1.

·    US job openings dropped by 275,000 to 7.437 million in June 2025, missing expectations of 7.55 million. Declines were seen in accommodation and food services (-308,000), health care (-244,000), and finance (-142,000), while increases occurred in retail trade (+190,000), information (+67,000), and state/local government education (+61,000).

·    The US goods trade balance deficit narrowed by $10.4 billion to $86 billion in June 2025, below expectations of $98.4 billion. Importers reduced foreign orders after front-loading inventories due to tariff concerns, following a record deficit of $162 billion in March.

·    The US S&P CoreLogic Case-Shiller 20-City Home Price Index fell -0.34% MoM, but increased 2.8% year-over-year in May 2025, down from 3.4% in April and missing the expected 3.0%. This is the slowest growth since August 2023, impacted by higher mortgage rates, tighter financial conditions, and localized market dynamics.

Key Points

·    Equities: US earnings disappoint; Fed decision due; Europe rebounds; Novo Nordisk plunges

·    Volatility: VIX 15.98; curve steepens; SPX straddle signals ±0.5% move

·    Digital assets: Bitcoin flat; Ethereum firmer; crypto stocks weaker; ETF flows key

·    Fixed Income: US Treasury yields drop ahead of FOMC, key jobs data through Friday’s US jobs report

·    Currencies: JPY outpaces the US dollar, rising across the board ahead of FOMC tonight and BoJ to follow in Thursday Asia session.

·    Commodities: Oil rallies hard on Russia supply concerns. Gold and silver survive test of support

·    Macro events: US July ADP payrolls change, US Q2 GDP, Bank of Canada Rate Decision, FOMC meeting, Bank of Japan meeting