Bank of Canada's Hold Leaves Rate Path Uncertain; USD/CAD Downside Intact, RBC Says

03:48 PM EST, 01/30/2026 (MT Newswires) -- RBC Capital Markets said the Bank of Canada delivered the expected hold this week, underlining that the timing and direction of the next rate move was uncertain. MPR projection changes were on the dovish side, but they are clearly comfortable at the current setting.

RBC continues to see a sizable risk of hikes late in the year. In the very short-term, RBC is cautious on chasing the downside in USD/CAD at current levels, but its medium-term view for a lower USD/CAD is intact, according to its CAD Weekly Soundbites (Rates & FX).

RBC said a steady hold at 2.25% was delivered on Wednesday, as expected. Communications emphasized comfort with the current rate setting, with the timing and direction of the next move unclear. A high degree of uncertainty on the outlook was noted, especially on the USMCA review. 2026 growth was held at +1.1%, matching the slightly raised potential growth estimate. End of 2026 inflation forecasts were reduced for headline (from 2.2% to 1.9%) and core (from 2.3% to 2.1%). RBC said it continues to see the market underpricing the potential for BoC hikes late in the year.

On FX, RBC said that in the very short-term, it is cautious on chasing the downside in USD/CAD at these levels, amid the pace of the pair's selloff over the past two weeks, and the BoC delivering a comfortable hold while highlighting heightened uncertainty. Having said that, RBC said its medium-term view for a lower USD/CAD is intact, conditional on broader USD weakness, the BoC's next move being a rate hike, and Canadian goods continuing to enter the US largely duty-free.

On rates, RBC said GoCs and USTs didn't show any persistent divergence on the week, with largely uneventful central bank meetings (CA/US 10y bond spread from -85bp to -82bp).

From a technical perspective, "the 3.35% resistance level has continued to attract selling interest in bonds this week, pushing yields back toward initial support at 3.43%. Nonetheless, yields will have to close above the 3.48/3.50% area in order to reassert the prior uptrend. Reassess on a daily close below 3.29%," said George Davis, chief technical strategist at RBC Capital Markets.

RBC said it still likes CAD/CLP & CAD/NOK lower in H1. CAD/NOK traded to the initial technical target of 7.08 this week - although there may be some consolidation in the very short-term, the fundamental picture points to further downside to 6.84. RBC said it will reassess on rallies above 7.2023 (Dec low) and 7.2174 (trendline).

"With prices taking out the December low at 1.3643 and the key triple bottom at 1.3540 this week, attention turns to initial support at 1.3494, followed by the more important low from September 2024 at 1.3420. Stretched valuations present some caution, setting the stage for a potential correction over the next 2-4 weeks. Resistance stands at 1.3540 and 1.3643," said Davis.

Looking ahead, RBC said it is a lighter week for domestic events after the BoC meeting and important data following it. The Jan employment report (Friday) follows four straight job gains to close 2025 (+189,000 cumulative). This streak is likely to be broken, though a retracement after high labor force growth in December should still leave the unemployment rate edging down to 6.7%. Governor Macklem (Thursday) speaks on "Forces Reshaping Canada's Economy in 2026", which is likely to emphasize key themes from the MPR meeting, including elevated uncertainty on the outlook due to USMCA/trade policy.

Globally, RBC said there are rate decisions in Australia (Tuesday), UK (Thursday), and the Euro area (Thursday). Data wise, there will be ISM manufacturing & services in the US (Monday/Wednesday), Q4 employment in New Zealand (Tuesday), final PMIs in the Euro area and UK (Wednesday), 'flash' CPI in the Euro area (Wednesday) and Sweden (Friday), ADP employment (Wednesday) and NFP in the US (Friday).

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