12:18 PM EDT, 07/30/2025 (MT Newswires) -- The Toronto Stock Exchange is down near 64 points at midday, with most sectors lower. The biggest decliner is healthcare, down 1.3%.

The Bank of Canada left its key rate unchanged at 2.75% this morning.

Thierry Wizman, Global FX & Rates Strategist at Macquarie Group, said the BoC was compelled to "hold" by the uncertainty around trade policy, which may endure until a new USMCA is negotiated, starting later this year. Because Macquarie remains optimistic on the "ultimate repair" of the US-Canada trade relationship within the USMCA framework, it thinks that USD-CAD eventually finds its way lower, to 1.34.

The Bank of Canada did suggest that there "may" be the need for a further reduction in the future. The hold in rates today was justified by signs of "some resilience" in the economy and of "ongoing pressures" in core inflation. However, it was suggested in the statement that there "may" be the need for rate reductions in the future if a weakening economy places downward pressure on inflation and if the upward inflationary pressures from the trade dispute were contained. While the Bank has hinted in this direction within Governor Macklem's press conference remarks and the minutes of the previous meeting, recent statements haven't provided this same directional guidance.

The accompanying Monetary Policy Report also hinted that the Bank is inching closer to a cut, with estimates that the output gap at Q2 stands at -0.5% to -1.5% (from 0 to -1% in April) which should place downward pressure on core inflation over time. That is based around their forecast that the economy will contract by a 1.5% annualized rate in Q2, which is weaker than the current tracking from industry-level data. As well as an updated forecast based on the "current" tariffs situation, the Bank also provided scenarios under a de-escalation and an escalation of tariffs and related uncertainty.

Overall, the Bank appears to be getting a little more comfortable with the notion that the Canadian economy will need the support from further interest rate cuts in the future. However, it is clearly not there yet and upcoming data will remain more important that today's slight change in language in determining if that support comes at the September meeting as we currently forecast.