BoC's Macklem: US tariffs may cut Q4 growth to below 1%

Bank of Canada Governor Tiff Macklem's remarks are hitting the wires:

• If the new US tariffs persist, fourth-quarter growth could be cut roughly in half, falling under 1%.
• With oil prices near $100 a barrel, we anticipate inflation to tick up in the near term.
• Fuel costs have climbed more than typical, due to damaged global refining capacity.
• Recent pump prices align with an oil price nearly $40 above its recent level.
• So far, there is no sign that elevated oil costs are feeding into other products and services.
• We prefer to avoid raising rates and dampening growth if inflation pressures stay limited.
• New US tariffs could sharply reduce fourth-quarter growth, according to the Bank of Canada.
• In rate decisions, we must look past the initial oil price surge.
• We also want to avoid being slow to react if inflation pressures become more entrenched.
• Evidence is mounting that many Canadian firms have begun adjusting to the US tariffs.
• The Bank projects labor force growth to be nearly flat over the coming years.

Analysis: Macklem is underscoring the tricky balancing act for the Bank of Canada. Tariffs could severely dent economic growth, while higher oil and fuel prices might boost inflation shortly. This sets up conflicting pressures for monetary policy.

For now, the tone is cautiously neutral. The Bank is reluctant to hike rates in response to a temporary oil-price spike, especially with growth already weak. However, officials will monitor closely for signs that higher energy costs are filtering into other goods and services. If these second-round inflation effects emerge, the Bank might need to act despite the softer growth outlook.

In the North American session, USDCAD found support in a swing zone between 1.3989 and 1.4003, helping the pair recover toward the day's highs at 1.4023. A break above that could trigger a move toward the 61.8% retracement at 1.40502.