EMISSIONS: EU End-Of-Day Carbon Summary: EUAs/UKA Rise On EU Gas, Equities Gains

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The Bank of Canada is expected to cut its benchmark overnight rate by 25bp to 2.50% on Wednesday September 17. This comes after three consecutive holds, amid a period in which activity and labour market data proved more resilient than expected in the face of the US-Canada trade conflict.

• Data since the July meeting have been almost unambiguous in tilting the balance toward a further easing, culminating with softer core CPI trends in August’s inflation report released on the eve of the decision.
• Almost all Canadian analysts expect a 25bp cut to be announced Wednesday.
• A 25bp reduction would bring rates toward the lower end of the BOC’s estimated neutral range.
• With no Monetary Policy Report released at this meeting and thus no new economic projections, there will be initial attention on the decision statement which is expected to remain non-committal on future cuts but retain the overall easing bias. That’s a tone likely to be echoed at the press conference.
• While Governing Council’s message will probably reiterate they are proceeding “carefully” with a meeting-by-meeting approach, the overall meeting communications will leave the door open to another rate cut in October if data continue to develop in a similar direction over the interim period.
• Views on the BOC terminal rate are split between those analysts who see one further cut beyond this week (2.25% terminal), and those who see two more (2.00%, so slightly below what would largely be considered neutral). That matches markets pricing between 1 and 2 cuts by end-2026 in addition to this week’s.

Following are the expected instant answers for the Bank of Canada interest-rate decision due Wed at 945am EST:

• Target for overnight rate: 

• Does the Bank say the case for further rate reductions is strong?

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  Does the Bank reiterate it could LOWER rates if the economy weakens and inflation is contained?  

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  Does the Bank mention core inflation has been elevated?

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  Does the Bank say growth or job market prospects have weakened?

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  Does the Bank say it may be less forward looking with policy?

• Despite the broad weakening for the dollar Tuesday, AUDUSD has failed to capitalise on these dynamics, remaining in a very tight range 17 pip range for the majority of the session. The softer price action for major equity benchmarks has worked as an offsetting factor for AUDUSD, limiting the topside momentum that has been building over the last week.
• The latest rally plus the breach of 0.6625, the Jul 24 high and bull trigger, confirmed a resumption of the uptrend and moving average studies remain in a bull-mode position.
• The climb opens the US election related highs at 0.6688 and 0.6726 and 0.6763 are the next notable targets for the pair, both projection levels of the Jun 23 - Jul 24 - Aug 21 price swing.
• While the Fed will remain the primary driver for short-term AUDUSD sentiment, it is worth highlighting that Australia employment data for August is scheduled on Thursday, where a +21k employment change is currently expected. The unemployment rate is expected to stay at 4.2%. As a reminder, the RBA adjusted its language on the labour market in August, acknowledging that labour market conditions have eased further in recent months.