Premium Watchlist Recap: BOC Monetary Policy Statement (September 2025)

The Bank of Canada cut interest rates by 25 basis points from 2.75% to 2.50% in their September decision while offering minimal forward guidance on next moves.

While the decision itself was no surprise, the slightly more downbeat tone in their accompanying statement suggested that further easing could be possible.

Let’s examine which setups from our watchlist capitalized on the BOC’s less optimistic outlook and how they performed during this busy central bank week.

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The Setup

• What We Were Watching: BOC Monetary Policy Statement for September 2025
• The Expectation: BOC to cut rates by 0.25% to 2.50%
• Data outcome: BOC lowered borrowing costs by 25 basis points as expected, Governor Tiff Macklem emphasized that the overall assessment suggests this likely won’t be the final cut of the cycle
• Market environment surrounding the event: Caution ahead of the more market-moving FOMC decision, with some profit-taking on short USD positions and easing off risk plays

Event Outcome

The BOC delivered on expectations of an interest rate cut, refraining from giving strong forward guidance but still keeping the door open for further easing, possibly in December. The official statement highlighted risks from a deteriorating labor market and tariffs uncertainty, with slowing momentum on price pressures.

Key Takeaways:

• Rate cut delivered as expected: 25bp reduction brings overnight rate to 2.50%, with bank rate at 2.75% and deposit rate at 2.45%
• Labor market deterioration accelerating: Employment has declined for two consecutive months, pushing unemployment to 7.1% in August
• GDP contracted sharply: Second quarter GDP fell 1.6%, largely due to tariff impacts on exports which plummeted 27%
• Inflation pressures moderating: Core inflation measures around 3% but monthly momentum has dissipated; headline CPI at 1.9%
• Trade disruption spreading: Beyond initial tariffs on steel and aluminum, impacts now affecting auto, copper, softwood lumber, and agricultural sectors
• Business investment paused: Companies delaying capital expenditure amid elevated policy uncertainty

During the press conference, Macklem noted that uncertainty remains elevated and that the central bank will continue to assess impacts of tariffs and uncertainty on economic activity and inflation.

Fundamental Bias Triggered: Bearish CAD setups

The week’s trading environment appeared complex, as pre-FOMC positioning and risk flows remained dominant market drivers before risk correlations appeared to break down after the Fed event.

Early Week: Stimulus in Focus

News that China and the U.S. reached a framework for a TikTok deal during weekend meetings lifted risk-taking early on, but the spotlight was mainly on the upcoming FOMC decision and the likelihood of a dovish announcement, with some bracing for a potentially larger 0.50% rate cut.

Mostly downbeat data from China also spurred additional stimulus hopes, with the government later on confirming that they’ll have policy measures to boost services sector activity and foreign investment.

Mid-Week: Market Caution and FOMC Volatility

Market players started unwinding FOMC bets leading up to the actual event, leading to a shallow dollar recovery in earlier trading sessions while gold also retreated from its record highs.

The highly-anticipated Fed announcement featured a 0.25% rate cut as expected while the dot plot projections confirmed more easing moves for the remainder of 2025. However, the dollar quickly rebounded from its decline when Fed head Powell downplayed labor market risks while the updated economic estimates showed upgrades in growth and inflation.

Most asset classes went off on their own merry ways after the FOMC decision, though, as individual catalysts appeared to drive price action in the aftermath. Bitcoin found support from the SEC approval of generic listing standards for crypto ETFs while U.S. equity indices rallied on the heels of Nvidia’s investment in Intel. Crude oil turned its attention back to geopolitical headlines, and Treasury yields banked on upbeat mid-tier U.S. data underscoring the Fed’s optimistic view.

Friday: 

Markets displayed unusual correlations on Friday as multiple competing themes created investor confusion, with gold, Treasury yields, the dollar, and equities all advancing simultaneously despite their typical inverse relationships. Mixed Federal Reserve communications from officials Miran and Kashkari likely contributed to this divergence, as investors struggled to reconcile dovish policy expectations with resilient economic indicators. The risk-off rotation was evident in declining speculative assets like Bitcoin and crude oil, while traditional safe havens and U.S. assets benefited from flight-to-quality flows amid global fiscal concerns.

CAD/JPY: Net Bearish CAD Event outcome + Risk-Off Scenario = Arguably good odds of a net positive outcome

This yen pair entered the BOC decision already trading below the short-term trend line support while anti-USD flows came in play ahead of the FOMC announcement later on the same day. Expectations for a dovish BOC statement also appeared to weigh on the Loonie before the actual event, dragging it below the pivot point level (106.67) midweek.

The actual announcement spurred another dip for CAD/JPY but the move was muted largely due to market anxiety ahead of the FOMC decision, which then led to a spike down to S1 (106.00) while CAD trailed the U.S. dollar in its initial selloff. A bounce followed during Powell’s not-so-dovish presser, bringing CAD/JPY back to retest the broken trend line.

CAD/JPY proceeded to rally through the rest of the week, likely reflecting the slight shift towards a broad risk on lean, and despite a tumble in oil prices. The “buy-the-rumor, sell-the-news” effect was also likely in play, given how sour sentiment was on CAD leading up to the BOC Statement.

The market eventually found resistance at the R1 Pivot resistance area, where we did see a bearish move correlating with the surprisingly hawkish BOJ statement event (BOJ announced it will unwind its massive ¥75 trillion ETF stockpile—combined with two board members dissenting for rate hikes). This proved to be another buying opportunity for CAD/JPY bulls, likely with the help of the hawkish sentiment in JPY fading quickly as traders likely priced in the likely long time frame that the BOJ will unload its assets.

Not Eligible to move beyond Watchlist – Bullish CAD Setups and EUR/CAD Long Setup

EUR/CAD: Net Bearish CAD Event outcome + Risk-On Scenario

EUR/CAD 1-hour Forex Chart by TradingView

This pair broke through the targed range resistance not too long after our discussion, arguably with the help of net positive mid-tier eurozone data such as the German ZEW economic sentiment index and upbeat ECB commentary likely lifted the euro.

A positive showing in European equities, likely driven by risk flows in anticipation of a dovish FOMC, may have also kept the euro supported against the Loonie.

EUR/CAD even busted through R1 Pivot resistance level and tested the R2 level before pulling back and holding a range ahead of the BOC’s statement, and after the event as well as traders were likely waiting for FOMC to move major adjustments.

The FOMC statement triggered a spike past R2 (1.6320), which soon faded as CAD also took advantage of dollar strength, and a “buy-the-rumor, sell-the-news” rally in CAD likely began to develop.

EUR/CAD made a strong push lower through the rest of the week, despite the fall in oil prices and the euro’s resilience to outperform this week, eventually hitting the bottom of the pre-BOC event range we were watching in our original discussion.

CAD/CHF: Net Bullish CAD Event Outcome + Risk-On Scenario

CAD/CHF 1-hour Forex Chart by TradingView

Our watchlist discussion mentioned a possible CAD/CHF upside breakout in the event that the BOC delivers a “hawkish cut” or dampens expectations of further easing. As previously discussed, that did not play out, at least as we initially assessed the event.

The pair actually broke below the consolidation range shortly after our original discussion, strengthening the attractiveness of the setup if fundamental conditions develop favorably.

Ultimately, this Watchlist was invalidated by the fundamental outcome in our opinion, but CAD/CHF did rally strongly post BOE-event as the “buy-the-rumor, sell-the-news” market reaction seemed to outweigh most other drivers of the week for the Canadian dollar. Broad risk-on sentiment was likely a factor as well as it appears the market wasn’t so down on the fact the Fed did not signal a more aggressive rate cut outlook this week.

NZD/CAD: Net Bullish CAD Event outcome + Risk-Off Scenario 

NZD/CAD 1-hour Forex Chart by TradingView

As mentioned above, bullish CAD watchlist setups like the NZD/CAD short at a range top  were invalidated given the outcome of the BOC monetary policy statement, but that didn’t stop NZD/CAD bears from taking the pair sharply lower.

For this particular pair, while the “buy-the-rumor, sell-then-news” effect for CAD was most likely a big driver, NZD was no slouch in in driving this pair lower.  The Kiwi had a terrible week, likely driven by the steady stream of net weak New Zealand economic updates, most notably, the disappointing Q2 GDP read that showed economic contraction in New Zealand.

In hindsight, this may have been the best pair to trade as the Kiwi had fresh fundamentals to drive momentum, a perfect match to how traders ultimately reacted in CAD after the Bank of Canada statement.

The Verdict

While the BOC refrained from giving explicit forward guidance on further easing, the tone of their official statement highlighting labor market and tariffs risks suggested that the Canadian central bank is open to more rate cuts for the rest of the year.

And with broader market sentiment leaning slightly risk-off just ahead of the BOC announcement, CAD/JPY appeared the most reliable setup for the week among our watchlist discussions. The pair already exhibited sustained bearish momentum even before the target event, keeping the opportunity for a retest in play should the BOC lean dovish.

However, the “buy-the-rumor, sell-the-news” reaction in CAD was particularly strong, especially with a lack of strong signal of future BOC cuts ahead. Also in hindsight, the rebound probably shouldn’t have been too big of a surprise given the Canadian’s under performance in September, characterized by a strong sell-off in CAD against the majors until mid-September, where the currency held until the BOC event.

Post-FOMC dynamics and an extra busy central bank week created a more complex web of factors driving the markets, but the fall in oil prices was probably the behavior that suggested traders were simply unloading CAD short, likely taking profits from short positions.

Overall, we rate this strategy as “not likely” as the only possible net positive outcome from shorting CAD/JPY this week would have been after the bounce and reversal patterns at the R1 Pivot resistance area. But that was short-lived and would have required very active trade management to generate a net positive outcome.

Key Takeaways: