TD Securities: The Market Severely Underestimates the Risk of Bank of Canada Easing in 2026

Golden Ten Data reported on March 5th that strategists at TD Securities believe the market seems to underestimate the risk of rate cuts in Canada in 2026, as well as the potential strength of tightening policies in 2027. They stated that the Canadian economy is currently engaged in a tug-of-war between two opposing narratives: on one hand, the prolonged negotiations of the USMCA (United States-Mexico-Canada Agreement) have intensified concerns about the health of the economy, which are often exaggerated; on the other hand, the recent surge in energy prices has provided some emotional offset. The drag caused by trade uncertainty and the transmission effects of high oil prices may play a role in the Bank of Canada's deliberations over the coming months. However, TD Securities ultimately pointed out that the outlook for domestic household and government spending will be the most important determining factor. If the output gap fails to narrow this year, the likelihood of rate cuts will increase.