As had been almost universally expected, the Bank of Canada left its policy settings on hold this morning, and again clearly signalled that policy rates are sitting at near-neutral levels, minimising the likelihood of another move in the coming months.

Policymakers led by Governor Tiff Macklem maintained the policy rate at 2.25 percent after cutting at both the September and October meetings, and in the official statement setting out the decision, again noted that the current policy rate is “at about the right level” to keep inflation under control and sustain growth.

Officials acknowledged signs of resilience in the Canadian economy, pointing to a “surprisingly strong” jump in third-quarter gross domestic product, “solid gains” in job creation in the past three months paired with a decline in unemployment, and inflation that is holding near target despite some short term choppiness. But threats were also identified: growth is seen accelerating only slightly in 2026, employment gains might moderate given “subdued” economy-wide hiring intentions, and trade uncertainties are expected to loom over activity for some time to come.

In remarks prepared ahead of the post-decision press conference, Governor Tiff Macklem acknowledged recent evidence—in the form of revisions to Statistics Canada’s growth numbers from 2022, 2023, and 2024—suggesting that the economy was stronger than previously believed before this year’s tariff shock, and welcomed the positive impact that changes in fiscal policy could bring over time. He nonetheless avoided endorsing market expectations for a rate hike in the back half of 2026, warning that “increased trade friction with the United States means our economy works less efficiently, with higher costs and less income,” and emphasising the role that elevated levels of policy unpredictability are having on the economy, noting that the upcoming review of the Canada-United States-Mexico Agreement is weighing on business behaviour.

The Canadian dollar is slightly weaker as we go to print, pointing to a slight ratcheting back in market pricing for a rate hike by October next year.

This comes as the Federal Reserve is expected to cut rates later today, narrowing the policy gap with the Bank of Canada. Markets currently expect the difference between US and Canadian rates to narrow from roughly 165 basis points* today to 60 over the year ahead, and positioning is beginning to shift in favour of an upside move in the Canadian dollar if this plays out. We think this is premature—the US economy is still on the right end of some serious tailwinds, and Canadian businesses and households remain deeply uncertain about the future—but would nonetheless acknowledge that a change in the zeitgeist has occurred, and that the loonie’s risk profile is tilting toward further gains, at least in the short term.

*Calculated using the difference between current effective rates and swap-implied forward rates in each country.