Canada’s inflation rate edged down in January, but markets see little reason for the Bank of Canada to resume rate cuts as policymakers weigh trade uncertainty and housing weakness. Investors are also bracing for signals from the U.S. Federal Reserve that could reshape expectations for interest rates and currencies.
BNN Bloomberg spoke with Karl Schamotta, chief market strategist at Corpay, who said markets are pricing in no change to Canadian policy rates into early 2027, while warning that heavy bearish positioning against the U.S. dollar could leave investors exposed to a rebound.
Key Takeaways
- January’s softer inflation reading has not shifted market pricing, which points to no change in the Bank of Canada’s policy rate into early 2027.
- Policymakers are balancing downside risks from trade tensions, housing and weak investment against inflation that remains near target.
- Investors are rotating out of speculative assets after a sharp selloff, with signs of mean reversion across equities, commodities and currencies.
- Despite recent volatility, major U.S. tech stocks remain sharply higher over the past year, supporting household wealth and spending.
- With positioning heavily bearish on the U.S. dollar, any upside surprise in U.S. growth or Fed policy could trigger a rebound in the currency.
Read the full transcript below:
ANDREW: OK, Canada’s inflation rate edged down in January. Does this give the Bank of Canada an opening to cut rates yet again? Let’s get perspective from Karl Schamotta, chief market strategist at Corpay. Karl, thanks very much indeed.
KARL: Good to see you.
ANDREW: I get Tiff Macklem has been at pains to say, look, I can’t do much about trade wars.
KARL: That’s right. I think he’s very clearly articulated the need and the motivation for staying on hold for a prolonged period of time here, and markets have definitely taken his words to heart. When we look at overnight index swap pricing, it is showing no movement in Canadian policy rates through to the early part of 2027. So it’s definitely a bank that wants to sit on the sidelines and does not see a good reason for moving in either direction right now.
ANDREW: I guess one reason he’d want to avoid cuts for now, he wants to keep his powder dry in case the economy really goes into a tailspin.
KARL: That’s right. They are definitely monitoring downside risks when it comes to trade relations with the U.S., when it comes to broader business investment and consumer spending, and with respect to the housing market. But I think the basic prognosis at this point is that if they don’t touch the pedal for now, the economy should come through this with minimal damage and grow at a relatively gradual pace without sparking a new wave of inflation anytime soon. So it does make sense at this point to stay in neutral and preserve as much optionality as they can on either side of the rate cycle.
ANDREW: We’re seeing signs that investors are cautiously moving back into tech stocks today, but the selloff over, well, this year has been pretty violent for some of these big names.
KARL: Yes, across financial markets, really, we’ve seen a move away from those sort of speculatively driven, overheated asset classes back toward a more defensive posture. When we look at everything from currencies through to precious metals to commodities and equity markets, we’re seeing that sort of dynamic. It does make sense. We clearly overextended in the late autumn through the early part of the year, and it does make sense for some rebalancing, some mean reversion, to take place here. The reality is that we can’t continue to go to the moon in a lot of these asset classes with no relation to fundamentals. So the faster that we take off some of that speculative excess, the more likely it is that we avoid a wreck down the road here.
ANDREW: It is interesting. I’m just looking at Nvidia. Nvidia is still up about 35 per cent in a year, and Alphabet is still up 64 per cent, so people have made a lot of money on these big tech stocks.
KARL: Oh yeah. Overall household wealth and the overall value of stock portfolios are up dramatically, really, over the last five years. If we look at the post-pandemic period, we’ve created trillions in wealth, at least on paper, and that’s driving a lot of economic effects downstream. I do think that at some point gravity has to reassert itself, but if we can kind of hold at these levels and let economic fundamentals catch up, then that is a more healthy outcome than continuing to pour additional money into the boom.
ANDREW: You know, it’s interesting. I referred to this earlier — Financial Times talking about a backlash in the MAGA heartland against this AI boom. And one grandma in Missouri quoted as saying, “I have grandchildren. It does concern me that they’re being drawn into a world that isn’t real.”
KARL: Yes, it’s interesting. If you look at the whole world from a broader context, from a societal and social context as well as the technology that’s being used, it is clear that we’re moving into an intangible world where the relation to what people used to consider real is pretty tenuous. I think that’s interesting on two levels. On one level, it does mean that we’re probably getting overly detached from physical fundamentals that still matter. It still matters where we take precious metals and base metals out of the ground. It still matters how we power things and where commodities come from. So there’s an opportunity there. But there’s also an opportunity in the fact that value creation in the economy is increasingly moving into this sort of digital space that is unhinged from where we have been in the past. I think this is a real challenge for investors and for policymakers to really grapple with: where is value going to come from in the future? What are people going to find useful and where is wealth creation going to happen? The reality is, if we look at younger generations right now, what they think is important relative to what older folks think is important is very, very different.
ANDREW: Give us your thoughts on the U.S. dollar. If somebody came to you and said, “Look, I’m thinking of shorting the U.S. dollar over the next year,” what would your response be?
KARL: I would say don’t do it. That’s always a dangerous strategy. Trying to predict foreign exchange rates is very, very difficult. Firstly. But secondly, when we look at measures of positioning — whether we’re looking at investor positioning in the futures markets, options pricing or option skews, or fund manager surveys — they’re all overwhelmingly bearish on the dollar. To me, that’s a contrarian sign. That’s a sign that investors are in a lopsided position and unprepared for a set of outcomes in which perhaps the U.S. economy outperforms expectations, perhaps we see an acceleration in growth in the coming months and a hawkish repricing in Fed expectations. If we were to see that play out, the U.S. dollar could very well recover against most of its major counterparts and wipe you out if you’re in a leveraged short position.
ANDREW: Karl, always great talking to you. Thank you very much indeed. Karl Schamotta, chief market strategist at Corpay.
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This BNN Bloomberg summary and transcript of the Feb. 18, 2026 interview with Karl Schamotta are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
