Rabobank sees limited BoC easing ahead, narrowing US-Canada rate gap to weigh on USD/CAD
Rabobank expects the Bank of Canada (BoC) to deliver one final 25 basis point rate cut, likely at the October meeting. However, Rabo sees the risk tilted toward no further easing. The Bank of Canada held its policy rate at 2.75% in July.
Looking further ahead, Rabobank anticipates the US-Canada interest rate differential — currently at 175 basis points — will narrow to around 75 basis points by the end of 2026, as the Federal Reserve accelerates its own rate-cutting cycle. The BoC is expected to have already reached its terminal rate of 2.50% by that stage.
The bank believes USD/CAD will increasingly be driven by this narrowing rate spread, forecasting the pair to trade primarily between 1.34 and 1.36 — a zone of heavy price congestion during 2023 and 2024.
