07:02 AM EST, 12/11/2024 (MT Newswires) -- ING thinks Wednesday's Bank of Canada decision may have some readover to the United States.

Two-thirds of economists polled on the subject expect a 50bps rate cut from the BoC at 9:45 a.m. ET -- where the BoC would emulate peers in New Zealand, who have delivered back-to-back 50bps rate cuts, wrote the bank. Money markets also price 44bps of Canadian rate cuts on Wednesday.

ING's thinking goes as follows: if the BoC cuts by 50bps, briefly taking the Federal Reserve-BoC policy rate spread to a hugely wide 150bps, Canada's central bank must have a strong view that the Fed will cut 25bps next week.

Under this scenario, the Canadian dollar weakens, but also the US dollar could soften a little as expectations of a 25bps Fed cut are firmed up, stated the bank.

Should the BoC surprise and only cut by 25bps, it will be a signal that the BoC has strong doubts about next week's Fed reduction, according to ING. For example, the bank doubts the BoC is ready to leave the Fed-BoC rate spread at 150bps at year-end -- BoC cuts by 50bps to 3.25%, Fed leaves rates at 4.75% -- where such a wide rate differential would send USD/CAD upwards of 1.43.

If indeed the BoC only cuts by 25bps Wednesday, then the US dollar might catch a bid on the view that next week's FOMC meeting really is a "toss-up" after all, added the bank.