April 17, 2025 – DailyForex.pk
The Bank of Canada (BoC) held its benchmark interest rate steady at 2.75%, as widely expected, while delivering a strong warning about the potential economic fallout from a U.S.-Canada trade conflict. The announcement sparked a sharp rally in gold prices against the Canadian dollar, with XAUCAD rising back above C$4,600 per ounce.
📈 XAUCAD Rallies After Bank of Canada (BoC) Statement on Trade War Risks
Spot gold (XAUCAD) jumped 2.10% shortly after the BoC rate decision, trading last at C$4,601.18/oz, as investors sought refuge from growing geopolitical and economic uncertainty.
The BoC highlighted that escalating trade tensions and the unpredictable direction of U.S. policy under the Trump administration are creating significant risks for Canada’s economic outlook.
“The unpredictability of U.S. tariffs has diminished growth prospects and raised inflation expectations,” the BoC said in its official statement.
“This uncertainty makes forecasting GDP and inflation more challenging than usual.”
⚖️ Two Scenarios: BoC Forecasts Mild Slowdown or Full Recession
In its April Monetary Policy Report (MPR), the BoC outlined two possible outcomes tied to U.S. trade policy:
- Scenario 1: Limited tariffs lead to slower growth but inflation stays near the 2% target.
- Scenario 2: A prolonged trade war plunges Canada into recession, with inflation temporarily rising above 3% in 2026.
“There’s also an unusual degree of uncertainty about economic outcomes under either scenario,” the report added, citing the unprecedented nature of recent trade shifts.
🗣️ Governor Tiff Macklem: Canada Vulnerable to US Economic Downturn
In a post-announcement press briefing, Bank of Canada Governor Tiff Macklem emphasized that Canada’s economy is heavily tied to the U.S., and any downturn south of the border could magnify Canada’s struggles.
“These tariffs are harmful to both economies,” Macklem said.
“If the U.S. enters a recession, Canadian exports and business activity will decline sharply.”
He warned that U.S. policies could further depress consumer demand, business investment, and employment in Canada—adding more weight to the surge in safe-haven assets like gold.
🛑 BoC: Monetary Policy Can’t Solve Trade Wars
While acknowledging the economic challenges ahead, the BoC stated clearly that monetary policy has its limits in such scenarios.
“Monetary policy cannot resolve trade uncertainty or offset the impacts of a trade war,” the Governing Council noted.
“Its core mandate remains to maintain price stability for Canadians.”
The central bank signaled it will proceed cautiously, closely monitoring how tariffs affect inflation, business confidence, and household spending across the country.
📌 Conclusion: Gold Gains as Canada Braces for Economic Storm
As trade tensions deepen and policy uncertainty rises, gold’s role as a safe-haven hedge becomes even more critical—especially in countries like Canada that are economically linked to U.S. developments. The XAUCAD breakout above C$4,600 reflects the growing fear of recession and inflation on both sides of the border.
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