Canadian Dollar Forecast: CIBC Expects BoC Hike but Questions the Case
CIBC expects a Canadian rate rise on Wednesday, but doubts the economic case as the Canadian Dollar holds most of its recent gains against the US Dollar.
The Canadian Dollar held most of last week’s gains on Monday, with the US-Dollar-to-Canadian-Dollar exchange rate trading at C$1.4019 despite a modest retreat on the day.
USD/CAD closed at C$1.4106 the previous Monday, ahead of a week that brought a sharp disagreement over whether Canada needs higher interest rates.
Dollar to Canadian Dollar (USD/CAD): 1.4012 (+0.03%)
Euro to Canadian Dollar (EUR/CAD): 1.565733 (-0.22%)
CIBC has now joined the banks expecting a 25-basis-point increase to 2.50% on 28 October, bringing forward its first projected rise from 2027.
But its changed forecast comes with an unusually pointed warning: predicting a hike does not mean believing it is the right decision.
CIBC’s Avery Shenfeld writes: “Our revised call is solely based on Governor Macklem’s remarks, rather than the data, which have showed no signs that energy inflation is materially spilling over into the core CPI.”
The switch goes beyond the rising hike risk identified in CIBC’s earlier assessment of producer-price pressure, turning that possibility into its central forecast.
UniCredit and Wells Fargo still expect the Bank of Canada to leave rates at 2.25%, making Wednesday a test of how much weight policymakers give their recent warnings relative to the inflation data.
CIBC follows the signal but disputes the timing
For Shenfeld, Governor Tiff Macklem’s timing was decisive:
“We can’t see why Macklem would have hastened to make these comments at the IMF meeting, just before the Bank’s media blackout, other than to signal an October hike. If they were about what might come later, he could have saved them for next week’s press conference.”
His reservation is that subsequent core inflation readings could still have changed Macklem’s judgement, so CIBC regards a hike as less certain than markets did when the analysis was written.
The September inflation release offers some support for that caution: annual CPI rose to 3.1%, but inflation excluding gasoline slowed to 2.2% from 2.4%.
Those figures distinguish a more expensive fuel bill from a general acceleration in prices, although excluding gasoline alone is not a complete measure of underlying inflation.
Higher borrowing costs cannot restore disrupted oil supplies, but they can curb spending and reduce the risk that an energy shock spreads into wages and other prices.
CIBC questions whether Canada has reached the point where that restraint is necessary.
Shenfeld says: “Our worry that this could be a policy error is tied to the fact that we aren’t yet sure that ANY rate hikes will be warranted in the coming year, so moving early could be a step that the Bank comes to regret.”
The cost of acting before the uncertainty clears
Canada’s lower policy rate than the US does not, in CIBC’s view, prove that domestic financial conditions are too loose.
Shenfeld writes: “The most interest sensitive sector, homebuilding, is in recession, and higher bond yields are taking mortgage rates up to the detriment of home sales activity.”
He adds: “Business capital spending, while not dead in the water, isn’t enjoying the AI-related boom seen stateside, and many of the big capital projects on the table won’t see shovels in the ground until 2028 or later.”
“The advantage of putting this decision off until December or January is that the weeks after the US midterms could narrow the uncertainties over both energy inflation and Canada-US trade relations.”
If oil flows improve while trade friction worsens, inflation could ease just as growth needs more support, leaving an early hike working against the economy.
Wells Fargo reaches a similar assessment of the risks but stops short of changing its October hold forecast.
Referring to the 19 October release, its economists write: “Markets took those comments as distinctly hawkish, but Monday’s September CPI report did little to reinforce a sense of urgency.”
They cite softer labour-market conditions and tariff risks alongside the inflation figures, while UniCredit also favours waiting for more clarity on prices and geopolitics.
The disagreement extends beyond Wednesday: Wells Fargo questions the roughly one percentage point of tightening by end-2027 priced when it prepared its analysis.
“In discussions with our FX strategists, that leaves the CAD vulnerable to near-term disappointment if either the data or the Bank fails to validate those expectations.”
What This Means for USD/CAD
The Canadian Dollar enters the decision with recent gains to defend. A hold would challenge expectations of an immediate improvement in Canadian interest returns and could help USD/CAD recover, particularly if policymakers also resist the case for an extended tightening cycle.
A hike could support the Canadian Dollar, but its durability would depend on the accompanying Monetary Policy Report and policy explanation. CIBC expects the Bank to justify a first increase convincingly, rather than present it as an isolated adjustment without a broader inflation concern.
For a sustained move lower in USD/CAD, investors would need reasons to retain their expectations for higher Canadian rates after Wednesday. CIBC’s warning is that weaker growth or easing energy pressure could undermine that case even if its new hike forecast proves correct.
