“The Bank of Canada lowered rates by 25bps to 2.25%, disappointing what had been growing market expectations for a 50bps cut. However, this had little beneficial impact on CAD, as the statement was quite dovish and policymakers flagged more rate cuts ahead. Policymakers acknowledged the deteriorating macroeconomic backdrop by saying the global economy appears to be heading into a mild recession (led by the United States) and outlined several downside risks to the Canadian economy (e.g. lower exports, a deterioration in the terms of trade and tighter credit conditions). Not surprisingly, the BoC lowered its GDP growth projections to 0.6% in both 2008 and 2009 (from 1.0% and 2.3%, respectively, in the July MPR Update), and also reduced both its headline and core CPI forecasts. USDCAD jumped above 1.2100 following the decision, suggesting there was some concern the BoC might hold rates steady (the 1½% gain on the session is consistent with USD strength against most other G10 currencies).” (SC FX)