The Bank of Canada announced on Wednesday that the policy benchmark interest rate remains unchanged at 2.25%, marking the second consecutive pause, in line with market expectations. Governor Tiff Macklem indicated that the prevailing economic environment faces "unusually high" uncertainty, making it challenging to determine the timing and direction of the next rate adjustment. In the latest quarterly Monetary Policy Report, the Bank maintained its outlook of modest economic growth over the coming years and projected that inflation would roughly fluctuate around the 2% target within the forecast period. The Bank noted that, compared to its October 2025 projections, the global and Canadian economic outlooks have seen little change but remain highly exposed to U.S. trade policies and geopolitical risks. U.S. economic growth has surpassed expectations, supported mainly by investments and consumption related to artificial intelligence, with tariffs temporarily boosting inflation; however, these effects are expected to diminish gradually later this year. The global economy's average growth rate during the forecast period is estimated at about 3%. Domestically, the Bank anticipates short-term economic growth may slow, with a risk of GDP stagnation in the fourth quarter. Export activity has been impacted by U.S. tariffs, but domestic demand has rebounded, and employment has experienced some growth. The unemployment rate remains elevated at approximately 6.8%, with ongoing weak hiring intentions among businesses. The Bank has raised its 2025 economic growth forecast to 1.7%, while maintaining its outlooks for 2026 and 2027 at 1.1% and 1.5%, respectively. Regarding inflation, the December 2024 CPI increased to 2.4%, primarily reflecting base effects from prior GST/HST tax holidays. Core inflation has declined from 3% in October of last year to approximately 2.5%. The Bank expects that trade-related cost pressures will be offset by excess supply within the economy, with overall inflation remaining near the 2% target. The Bank emphasizes that the current interest rate level is appropriate but will closely monitor risk developments in this highly uncertain environment and adjust its policy stance if necessary.

The Federal Reserve concluded its meeting on Wednesday by maintaining the target range for the federal funds rate at 3.50% to 3.75%. The policy statement reflected that economic activity in the United States continues to expand steadily, with inflation remaining elevated. The labor market has shown signs of stabilization after previous softening. No explicit guidance was provided regarding the timing or magnitude of future rate cuts, emphasizing that subsequent policy adjustments will depend on incoming data and economic outlook. Fed Chair Jerome Powell stated that, over the past three meetings, the Federal Reserve has cumulatively cut rates by 75 basis points, and that the current stance remains appropriate to support maximum employment and bring inflation back to the 2% target. He noted that the U.S. economy is projected to grow steadily through 2025 and enter 2026 on a relatively solid footing. Recent labor market stabilization, characterized by slowed employment growth, is largely attributed to diminished labor supply growth, including reduced immigration and declining labor force participation. Meanwhile, the housing sector remains subdued. Regarding inflation, Powell acknowledged that inflation remains slightly above target, with the December core PCE inflation rate projected to be around 3%. He attributed the current inflationary pressures primarily to comprehensive tariff policies rather than demand overheating, suggesting that tariffs' impact on prices may be transitory and expected to peak this year before gradually declining. Powell also reaffirmed the importance of the Federal Reserve’s independence, warning that any erosion of this independence could severely undermine the central bank’s credibility and public trust. Outside macroeconomic policy discussions, a recent IMF study highlighted structural constraints on Canada's economic potential, noting that internal market segmentation significantly hampers growth. The IMF estimates that trade barriers between Canadian provinces function as internal tariffs of approximately 9%, and eliminating these barriers could increase the country’s GDP by around 7%, equivalent to an annual output boost of approximately 210 billion CAD.

In the 1W timeframe, the price has broken below the EMA200 and the lower Bollinger Band, with the MACD's MACD line and signal line forming a death cross near the zero-axis, indicating a continuation of the bearish trend. If the price remains below the EMA200, it is highly likely to decline toward key support levels around 1.35 and 1.342, near previous lows. The RSI value at 35 indicates an oversold condition, suggesting the market is in a downtrend but prone to potential rebounds, with peak levels gradually declining. In the 1Q timeframe, Bollinger Bands are narrowing, and moving averages are flattening, signifying weakened upward momentum. After breaking below the EMA12, there are no signs of a reversal, implying the price may decline toward the middle Bollinger Band at approximately 1.34. The RSI at 51 reflects a neutral market sentiment, with traders adopting a wait-and-see approach. Therefore, it is recommended to go long before going short.

Trading Direction: Buy

Entry Price: 1.35

Target Price: 1.38

Stop Loss: 1.33

Support: 1.35, 1.325, 1.28

Resistance: 1.38, 1.4, 1.42