Bank of Canada expected to keep interest rate steady at 4.5%

. Canadian Gross Domestic Product expanded 0.8% QoQ after showing no change in the previous quarter, recording the fastest pace since the second quarter of 2022. Canada's real GDP grew at an annual rate of 3.1% in the first quarter, following the 0.1% contraction in Q4 2022 and beating the market expectation for an expansion of 2.5%.

Some industry experts and banks are revising their calls, now expecting the BoC to deliver 50 bps rate hikes by September while some are predicting the central bank to resume its tightening cycle not until September. Markets are looking forward to Friday’s May employment report from Canada to reprice rate hike expectations in the second half of this year. Canada added higher-than-expected 41,000 jobs in April while the Unemployment Rate remained steady at 5%, near the record low of 4.

The Canadian Dollar could witness ‘sell the fact’ trades in case the BoC holds the rates while remaining ambiguous about the future policy path. USD/CAD buyers are likely to recapture 1.3500 and beyond on a dovish hike.

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