The Opening Statement from BOC TIff Macklem by topic. What are the implications for traders?
The opening statement from Macklem
Good morning. I’m pleased to be here with Senior Deputy Governor Carolyn Rogers to discuss today’s monetary policy decision.
Since our last decision in July, the conflict in the Middle East has persisted without a clear path to resolution. Closer to home, the United States has imposed new tariffs on Canadian exports, and the Canadian government has responded with proportionate counter-tariffs and new supports for hard-hit businesses and workers.
Against this background, the Governing Council assessed the economic data since our last decision, the evolving risks to the outlook, and the implications for monetary policy.
With recent data coming out largely in line with our July forecast, we decided to maintain the policy interest rate at 2.25%.
We have three main messages.
First, economic growth in Canada has picked up after stalling over the past year. That puts us on a stronger footing as we face new challenges. But uncertainty about the sustainability of the rebound has increased with new US trade actions.
Second, the ongoing conflict in the Middle East is keeping energy prices higher for longer, and this has increased the upside risks to the outlook for inflation.
Third, the Bank of Canada is committed to keeping inflation close to the 2% target over time. We will be a source of stability as Canadians navigate shifting global developments.
Let me expand.
As expected, the economy strengthened in the second quarter, with GDP up by 3.3% following very weak growth in the first quarter. Some of the strength was due to temporary factors, but the pick-up in activity was broad based. Consumer spending remained resilient. And following several weak quarters, there was some rebound in housing activity. Exports and business investment were up sharply. The labour market has also improved in recent months, with increased hiring by the private sector and the unemployment rate edging down to 6.4% in July. Still, recent indicators point to continued excess supply in the economy.
The increases in exports, investment and hiring are broadly consistent with what businesses have told us—they are adapting to tariffs, new technology and increased uncertainty. Overall, the data reaffirm our view of a broadening recovery.
However, new US tariffs and increased trade uncertainty pose risks to the sustainability of the rebound in economic activity. If the tariffs remain in place, they will hit targeted sectors hard. But we don’t expect them to have a large direct impact on the overall level of economic activity. Affected products represent about 5% of exports to the United States. And the federal government’s support programs will likely mitigate some of the harm. However, the situation remains fluid. The added uncertainty about the future of Canada-US trade relations may lead businesses more broadly to delay investment and hiring decisions.
CPI inflation has remained at around 3% in recent months, mainly because of persistently high gasoline prices. This is a direct result of the conflict in Iran, which has kept global oil prices high and has led to elevated margins for refined products like gasoline and diesel. Excluding gasoline, inflation in Canada was 2.2% in July and measures of core inflation have remained close to 2%.
Market expectations for oil prices have shifted up since July. The Bank has been looking through the direct impact of higher oil prices on inflation, but we’re monitoring closely for any signs that they are spreading to the prices of other goods and services. We haven’t seen much evidence of that yet. But with the conflict ongoing and shipments through the Strait of Hormuz still curtailed, upside risks to our inflation forecast have increased. The longer oil prices and refinery margins stay high, the greater the risk that higher energy prices spill over and turn into persistent inflation. In addition, the new US tariffs and the Canadian counter-tariffs could add costs for some businesses and feed into consumer prices over time.
Monetary policy cannot offset the effects of tariffs or influence global energy prices. What we can do is ensure global developments don’t jeopardize price stability in Canada.
Since our last decision, inflation and growth in Canada have evolved broadly as forecast. Against that background we decided to leave the policy rate unchanged. However, the upside risks to inflation have increased, while new tariffs make growth prospects more uncertain. Governing Council will assess the sustainability of the economic rebound and the outlook for inflation, and is prepared to adjust monetary policy as needed. The Bank remains committed to maintaining Canadians’ confidence in price stability through this period of global upheaval.
With that, the Senior Deputy Governor and I are pleased to take your questions.
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The statement details by topics:
Policy decision
- Held the policy rate at 2.25%, with growth and inflation evolving broadly in line with the July forecast.
- Prepared to adjust monetary policy as needed to keep inflation close to the 2% target.
Economic recovery
- GDP grew 3.3% in Q2 after very weak growth in Q1. Some strength reflected temporary factors, but the recovery broadened.
- Consumer spending remained resilient, housing activity rebounded, and exports and business investment rose sharply.
- Private-sector hiring improved, with unemployment edging down to 6.4% in July.
- Despite the improvement, excess supply remains in the economy.
US tariffs and growth risks
- New US tariffs threaten the sustainability of the recovery and will hit targeted sectors hard.
- Affected products account for about 5% of Canadian exports to the US, suggesting a limited direct impact on the overall economy.
- Government support should cushion some damage, but broader trade uncertainty could delay investment and hiring.
Inflation
- Headline inflation remains around 3%, largely because of elevated gasoline prices.
- Excluding gasoline, inflation was 2.2% in July, while core measures remained close to 2%.
- There is little evidence so far that higher energy costs are spreading broadly to other prices.
Energy and upside inflation risks
- The prolonged Middle East conflict and restricted shipments through the Strait of Hormuz are keeping oil prices and refining margins elevated.
- The longer those pressures persist, the greater the risk of more persistent inflation.
- US tariffs and Canadian counter-tariffs could also raise business costs and eventually consumer prices.
Overall policy tone. What does it all mean?
- A cautious hold with a modest hawkish tilt: Macklem explicitly highlighted increased upside inflation risks, while describing growth prospects as more uncertain.
- However, core inflation near 2%, continued excess supply and limited evidence of energy spillovers argue against interpreting the remarks as a clear signal of an imminent hike.
Macklem’s message is that Canada’s economy is improving, but tariffs threaten growth while high energy prices threaten inflation. That leaves the Bank of Canada balancing two competing problems.
First, remember how the currency pair works:
- USDCAD rises: The Canadian dollar weakens. It takes more Canadian dollars to buy one US dollar.
- USDCAD falls: The Canadian dollar strengthens. It takes fewer Canadian dollars to buy one US dollar.
The currency implications below are interpretations of the comments you provided, rather than a description of the actual market reaction.
1. Holding interest rates at 2.25%: Waiting for more information
The Bank’s policy rate influences borrowing costs across the economy. Lower rates generally encourage borrowing and spending. Higher rates generally slow spending and help control inflation.
By holding rates steady, Macklem is saying the economy does not currently need additional help through lower rates, but the inflation picture does not yet require higher rates.
Currency implication: An expected hold usually provides limited new direction. What matters more is whether the comments change expectations for the next decision. Fewer expected cuts would generally support CAD and push USDCAD lower, all else equal. The outlook for Canadian rates relative to US rates is especially important.
2. The economic recovery: Canada is on firmer ground
Consumers are spending, housing activity has improved, and businesses have increased exports, investment and hiring. That suggests the recovery is becoming more widespread.
However, some of the strength came from temporary factors. The Bank wants to see whether the improvement continues.
Currency implication: A sustained recovery would generally support CAD because it reduces the need for rate cuts and makes Canada more attractive to investors. That would favor a lower USDCAD. A recovery that fades would point in the opposite direction.
3. “Excess supply”: The economy still has room to grow
This means Canada has workers and business capacity that are not being fully used. Think of a factory that could produce more without adding another building or paying overtime.
When businesses can meet additional demand without struggling to find workers or increase production, there is less pressure to raise wages and prices sharply.
Currency implication: This limits the urgency to raise rates. It offsets some of the positive currency message from stronger growth and could weigh on CAD if that spare capacity persists alongside weaker activity.
4. Tariffs: A threat to Canadian sales and confidence
US tariffs make affected Canadian products more expensive for American buyers. That can hurt Canadian exporters’ sales and profits.
Macklem says the directly affected products represent about 5% of exports to the US. The bigger concern is that uncertainty spreads: even businesses not directly targeted may postpone expansion or hiring because they do not know what comes next.
Currency implication: This is generally negative for CAD. Weaker exports and investment could slow growth and increase pressure for rate cuts, favoring higher USDCAD. Tariffs can also raise prices, however, which complicates the Bank’s ability to cut.
5. Inflation near 3%: Gasoline is doing much of the damage
Headline inflation measures the overall change in consumer prices. Core measures help the Bank assess underlying inflation by reducing the influence of unusually volatile price movements.
Macklem’s point is that gasoline is keeping the overall number high, while inflation elsewhere looks much closer to the 2% target.
Currency implication: A 3% headline reading alone does not necessarily mean higher rates are coming. With core inflation near 2%, the Bank has room to wait. The more important question is whether price increases become widespread.
6. Persistent energy costs: The risk of inflation spreading
Higher fuel costs can eventually work their way into delivery charges, airfares, food and other products. That is what Macklem means by energy prices “spilling over.”
The Bank can tolerate an initial jump in gasoline prices more easily than ongoing price increases throughout the economy. Macklem says there is little evidence of broad spillovers yet, but the risk is increasing.
Currency implication: If traders expect those spillovers to keep Canadian rates higher for longer, CAD could strengthen and USDCAD could fall. Higher inflation itself is not automatically good for a currency—the expected central-bank response matters.
7. Higher oil prices: Helpful for exports, costly elsewhere
Canada exports oil, so higher prices can increase export revenues and support the Canadian dollar. But Canadian households and businesses also pay more for fuel.
Oil is therefore only one part of the currency story. Broader US-dollar moves and other economic forces can outweigh it. Bank of Canada research
Currency implication: Higher oil prices can support CAD, but they do not guarantee a lower USDCAD, particularly when trade uncertainty is also hurting Canada’s outlook.
My reading is a modestly hawkish hold—meaning the Bank sounds somewhat more concerned about inflation and less comfortable cutting rates. That offers potential support for CAD, but the tariff risks temper it. If traders focus on persistent inflation and fewer cuts, USDCAD could move lower. If they focus on damage to growth, it could move higher. These comments suggest directional pressures; they do not establish a specific exchange-rate target.
What has happened?The USDCAD has moved lower after the decision and has now broken below the next key target at the 100 hour MA and the broken 38.2% of the move down from the end of July high at the 1.3882 level. Breaking that level is more bearish. The next targets are the 200 hour MA at 1.3857 and then the 200 day MA at 1.38393.
Recall, that the price moved above its 100 day moving average earlier today at 1.39179, but ran into trendline resistance is near 1.3940. The move back below the 100 day moving average set up for the interest rate decision which has sent the prices lower. This article was written by Greg Michalowski at investinglive.com.提供 MainLink：Investinglive RSS Breaking News Feed
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