ING Expects Bank of Canada To Cut Rates By 25 bps Wednesday, Sees Downside Risk for Loonie

06:38 AM EDT, 10/29/2025 (MT Newswires) -- ING expects the Bank of Canada to cut rates by 25bps on Wednesday, with the policy statement out at 9:45 a.m. ET.

Markets have converged to this view, and the Canadian dollar (CAD or loonie) OIS curve now prices in 21bps, as ongoing trade-related risks to activity and jobs -- even higher after last week's United States-Canada escalation -- are outweighing some stronger-than-expected employment and inflation figures for September, wrote the bank in a note.

ING sees downside risks for CAD on Wednesday. Markets are largely pricing in a reduction, but it will be hard for the BoC to shut the door to more easing given the worsening trade picture.

There are some expectations in the CAD curve for more cuts, but rather diluted over the next six months and for 15bps in total, stated the bank. The real policy rate in Canada remains well above the level seen when unemployment last stood at 7.1%, and the substantial downside risks to the economy likely justify at least one more rate cut.

That might come earlier than expected, with January 2026 potentially becoming a target for easing speculation, added ING. Currently, it's embedding 35bps of easing in total.

The loonie has been resilient to negative trade news, partly as it was already trading at a discount relative to short-term fair value, according to the bank. Any dovish repricing in the CAD curve shifts that CAD fair value lower (higher in USD/CAD), and can allow further build-up of CAD shorts, even if that is a rather crowded trade.

As ING sees US dollar (USD) resilience as temporary, the bank still expects USD/CAD to end the year at 1.38. In the near term, the balance of risks is tilted to 1.41.

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