With one week until the Bank of Canada decision, what’s priced in?

We are one week away from the Bank of Canada's interest rate decision on June 5 and it looks like it will be tense in the FX market. Currently, the market expects a 61% chance of a rate cut and a 39% chance of no change to the 5.00% target overnight.

If the Bank of Canada does not cut interest rates next week, the market sees it as a certainty in July with 26 basis points priced in for the next meeting.

At the end of the year, the market was priced at a discount of 50 basis points.

Many are closely watching the Canadian housing market as it appears to be cooling down after a strong start to the spring. Some expect a wave of buyers to emerge after the interest rate cut, but will raising interest rates to 4.50% from 5.00% at the end of the year change the equation for buyers? It's an accurate picture and the stock is starting to pile up.

Regarding the upcoming Bank of Canada decision, on Friday we will get Canada's GDP and this is the last notable release before the decision.

I expect we will get a cut, but if it comes with guidance from the Bank of Canada (BOC) that they will be cautious in cutting further, the downside for the Canadian dollar may be limited. However, if the Bank of Canada lags behind the interest rate cutting curve, there could be a significant downside for the Canadian currency.