Bank of Canada Unlikely to Accelerate Rate Hikes on Tariff Deal – TD Securities

TD Securities analyst Robert Both noted that even if Canada and the U.S. reach a preliminary agreement on Section 338 tariffs, the Bank of Canada will not accelerate its pace of interest rate hikes. The Bank's policymakers want more hard data on how lower tariffs actually impact exports and output, and key trade data will not be released until November, implying a longer observation window before any policy shift.

**Tariff Deal Only Slightly Reduces Risk Premium**

According to TD Securities strategists, Section 338 tariff negotiations pose a binary risk to the Canadian dollar and the USD/CAD exchange rate. While a preliminary deal could modestly lower the tariff risk premium and provide some support for the loonie, this positive factor is not yet sufficient to alter the Bank of Canada's policy assessment framework. The Bank is more focused on the actual pace of recovery in the export sector following tariff adjustments, rather than the political signal of the agreement itself.

**Rate Hike Path Still Anchored to 2027**

On the interest rate outlook, TD Securities strategists expect the Bank of Canada to hold its policy rate at 2.25% throughout 2026, followed by two 25-basis-point hikes in January and March 2027, bringing rates back to a neutral level of 2.75%. This gradual path reflects that even amid external factors such as oil price shocks, the Bank remains highly patient on tightening policy, and the tariff deal will not disrupt this established rhythm.

**Data Vacuum Constrains Policy Shift**

The Bank of Canada faces a real constraint in data availability. According to market sources, key trade indicators that could verify the economic response to tariff reductions will not be published until November, leaving policymakers without sufficient basis to adjust forward guidance before then. This data vacuum means any speculation about accelerated rate hikes lacks support, and the Bank is more inclined to maintain its current wait-and-see stance.