Bank of Canada Preview: Core Inflation Is Near 2%, but Tariffs and Oil Cloud Wednesday's Call

The Bank of Canada announces its next policy decision on Wednesday 28 October at 09:45 Ottawa time, which is 13:45 UTC. Its target for the overnight rate is 2.25%, where the bank left it on 2 September. This time the decision comes with a new Monetary Policy Report, so traders will get fresh forecasts for growth and inflation along with the rate.

Canada's central bank faces a split picture. Headline inflation rose to 3.1% in September because of gasoline, yet the bank's two preferred core measures, CPI-trim and CPI-median, eased to 1.8% and 1.9%, right on the 2% target. At the same time, trade talks with the United States have broken down, new US tariffs and Canadian counter-tariffs are in place, and the bank's own surveys show inflation expectations rising.

Wednesday is also the busiest day of the month for rate decisions. The Reserve Bank of New Zealand announces at 01:00 UTC, the Bank of Canada at 13:45 UTC and the Federal Reserve at 18:00 UTC, so USD/CAD can be pushed around by both sides of the pair within a few hours.

What the Bank of Canada said in September

When it held the rate on 2 September, the bank said “the continuing conflict in the Middle East is keeping energy prices high.” It also noted that new US tariffs and Canadian counter-measures had been announced after the breakdown of trade talks, and that “both situations remain fluid.”

The domestic news was better than expected. GDP grew 3.3% in the second quarter at an annual rate after a very weak first quarter, with gains in consumption, housing, exports and business investment. Unemployment edged down to 6.4% in July, though the bank said demand for labour remained subdued and indicators pointed to excess supply in the economy.

On inflation, the bank flagged a risk rather than a problem. It said there was “little evidence of higher energy prices spreading to other components of inflation,” but warned that “the longer that high oil prices and elevated refinery margins persist, the greater the risk of spillover.” Its closing line was that the council “is prepared to adjust monetary policy as needed,” which keeps the door open in both directions.

September inflation: a gasoline story so far

Statistics Canada's September figures fit that description. The consumer price index rose 3.1% from a year earlier, up from 3.0% in August, as gasoline prices jumped 27.8%. Excluding gasoline, inflation eased to 2.2% from 2.4%. Food bought from stores rose only 1.7%.

Core measures pointed lower. CPI-trim slipped to 1.8% and CPI-median to 1.9%, both a tenth below August, while CPI-common eased to 2.4%. For a central bank that targets 2%, those numbers argue against a rate rise today. Our Canada CPI story has the full breakdown.

What the bank's own surveys show

The Business Outlook Survey for the third quarter, published on 19 October, gives a more mixed message. Interviews ran from 6 August to 2 September, and about three-quarters took place before the trade talks broke down. In those earlier interviews, sentiment improved: sales outlooks were better than in the second quarter, and the share of firms planning or budgeting for a recession over the next year fell from 17% to 6%, the lowest since the question began in 2023.

The later results were weaker. The survey says responses collected after the breakdown suggest the new tariffs are “weighing on firms' outlooks,” and that “inflation expectations have risen alongside the new tariffs and the recent rebound in energy prices.” Hiring intentions stayed soft, with most firms planning to keep headcounts unchanged. Expected growth in input and selling prices moderated but remained elevated, and almost a quarter of firms said it was too hard to say when inflation would return to 2%.

Households are worried too. The bank's Canadian Survey of Consumer Expectations for the third quarter found that long-term inflation expectations rose to match already elevated short-term expectations, and that expectations at all horizons moved higher after the trade talks collapsed. For a central bank, rising expectations are a warning sign even when core inflation looks calm.

Three ways Wednesday could go

The Bank of Canada has given no guidance beyond being ready to act, so the paths below are our own reading of the evidence, not a forecast.

• Hold with a balanced tone. Core inflation near 2% and soft hiring support staying at 2.25%. If the new forecasts look similar to July's, the loonie's reaction may be modest.
• Hold with a warning. The bank could stress the rise in inflation expectations and the risk of oil feeding into other prices. That would support the Canadian dollar by keeping a future rise in view.
• A rate change. A rise would be a surprise given the core data, while a cut looks unlikely with headline inflation above 3% and expectations climbing. Either move would cause a sharp reaction.

The forecasts in the Monetary Policy Report may matter as much as the rate. A lower growth path because of tariffs, or a higher inflation path because of oil, would show which risk the governing council now sees as bigger.

What it means for USD/CAD

The Canadian dollar has recovered this month. Worked out from the ECB's euro reference rates, USD/CAD stood at 1.3925 on 2 September, climbed to 1.4262 on 12 October, the highest reference rate of 2026, and eased back to 1.3995 on Friday 23 October. That is a fall of almost 2% from the peak, so the loonie arrives at the decision in better shape than a fortnight ago.

Oil is one reason the currency is linked to energy news. Canada is a large oil exporter, so higher crude prices tend to help the Canadian dollar, but the same prices raise inflation risks the bank must manage. The US side matters just as much: the Fed decides about four hours after Ottawa, and a firm Fed could undo any loonie strength from the Bank of Canada.

• Note both times: 13:45 UTC for Ottawa and 18:00 UTC for the Fed. Our economic calendar shows them in your own time zone.
• Read the statement's wording on spillover from energy prices and on inflation expectations. Any new concern there is the hawkish signal.
• Avoid holding large USD/CAD positions through both announcements unless your stop allows for two big moves in one day.
• Check sessions and liquidity on our market hours page; the Ottawa decision lands in the London and New York overlap.

See our Fed preview for the US side of the pair, and convert amounts with the currency converter.

Frequently asked

Sources: Bank of Canada: interest rate announcement, 2 September 2026 · Bank of Canada: Business Outlook Survey, third quarter of 2026 · Statistics Canada: Consumer Price Index, September 2026 · Bank of Canada: Canadian Survey of Consumer Expectations, third quarter of 2026 · Bank of Canada: upcoming events · European Central Bank: euro foreign exchange reference rates