Markets are pulling back from recent geopolitical-driven moves as easing tensions in the Middle East reduce demand for safe-haven assets. Investors are also turning their attention to next week’s Bank of Canada decision and the upcoming review of the Canada-United States-Mexico Agreement.
BNN Bloomberg spoke with Karl Schamotta, chief market strategist at Corpay, about the outlook for the Canadian dollar, the Bank of Canada’s policy path and why markets may be underestimating the risks tied to CUSMA negotiations.
Key Takeaways
- The Bank of Canada is widely expected to leave interest rates unchanged next week and avoid signalling a clear tightening bias.
- Weak domestic demand and a slowing economy are limiting inflation pressures, supporting a neutral policy stance.
- The Canadian dollar has been unusually stable as interest-rate expectations between Canada and the United States have largely stabilized.
- Markets appear to be pricing in little risk around the CUSMA review process, despite the potential for political uncertainty and currency volatility.
- Geopolitical developments in the Middle East, oil prices and U.S. economic data remain key drivers for currencies and bond yields.
Read the full transcript below:
LINDSAY: Both Treasury yields and the dollar are retreating from yesterday’s highs after Hezbollah and Israel agreed to temporarily halt cross-border fighting. Oil is also giving up some of its gains, as we just showed you. So let’s get more now from Karl Schamotta, chief market strategist at Corpay. Good morning. It’s great to have you join us.
KARL: Good morning, Lindsay.
LINDSAY: What is the main reason, do you think, that we saw oil prices really surge yesterday and then fall again this morning?
KARL: Right, Iran saying yesterday that essentially the Lebanon conflict, Israeli attacks on targets in Lebanon, were a red line that was causing them to walk away from the bargaining table, as it were. That sort of reminded markets of the supply crunch that’s ongoing within global crude markets. That lifted benchmarks and also pushed up U.S. yields and the dollar as well. And so we’re now seeing that reverse a little bit, just on the assumption that if we do see a ceasefire between Hezbollah and Israel, that might bring Tehran back to the bargaining table and set the foundation for another round of talks here.
LINDSAY: So much volatility, though, over the last couple of months. Do you feel like markets are starting to become a little more immune, at least, to the constant back and forth that we’re hearing coming out of these potential peace talks?
KARL: Oh, no question. Yeah, it is. It’s the boy who cried wolf at this point. We kind of keep running at the football and finding out that the deal is not quite what it was cracked up to be. Markets are growing more and more wary of overreaction, and one interesting side effect of this is that we’re seeing lower volatility in a lot of asset classes because participants are basically unwilling to place big directional bets on anything in an environment in which you can get sideswiped really, really quickly. Unfortunately, there’s this mood music in the background, almost like a horror movie, in the sense that as we see these global stockpiles in the energy complex wound down, it is getting closer to the point where we might see a non-linear rise in oil prices and very severe knock-on effects for the global economy. So there is a very high level of concern out there. There’s just less reaction to that everyday headline burst that we’ve become accustomed to seeing.
LINDSAY: What about how this is affecting Canada in particular? Geopolitics, how are they weighing on Canada’s exchange rate at the moment?
KARL: They’re kind of keeping us barely flat here. We’re not seeing a lot of volatility in the U.S.-dollar/Canadian-dollar exchange rate pair right now. The main reason there is that we do have this boost coming from energy revenues. We are seeing higher oil prices translating into better export revenues on one side, but at the same time we’re having that negative knock-on effect that higher oil prices tend to deliver to household consumption. What is interesting, I guess, in the backdrop to that is the fact that interest-rate differentials between the Bank of Canada and the Federal Reserve have stabilized. At one point, we were pricing three hikes from the Bank of Canada this year. We’re now back to one. The Fed is holding fairly stable in terms of how markets expect it to move by the end of the year, and so that is removing a big impetus for movement that we’ve historically seen in the loonie over time.
LINDSAY: When it comes to the loonie, I want to get to interest-rate decisions, because that’s happening next week, in just a moment. But compared to other currencies, like the yen or the euro, how does the loonie stack up at the moment?
KARL: Very flat. We’re seeing a lot more movement in other currencies. They’re not particularly volatile either, but U.S.-dollar/Canadian-dollar is remarkably quiet right now. One of the things that is astonishing right now is that if we look at implied volatility — and this is a technical measure, but it’s derived from option markets and the expectation for how much we expect markets to move in the future — implied volatility in the Canadian dollar right now is lower than it is across any other major currency, and it’s low right across the forecast horizon, right through to, for example, a year out from now. So markets are not only expecting that these geopolitical shocks don’t rock the Canadian dollar, that they don’t move it dramatically outside of the current trading range, but they’re also expecting the USMCA negotiations to leave a very minor mark on the currency over time.
LINDSAY: Okay, so back to the rate decisions. You kind of already gave your prediction on the Fed. What about the Bank of Canada? What do you expect to hear from Tiff Macklem next week?
KARL: I think they’re going to stay in neutral, and I’m definitely not alone in thinking that right now. The reality here is that the Bank of Canada is faced with this slowing Canadian economy, weak domestic demand coming from businesses that are not investing amid all of the uncertainty, and households that are looking at that uncertainty but also looking at their house values and pulling back on spending. And so what that means is that there is no demand-led inflation happening in the Canadian economy. It’s not like the post-pandemic period, where consumers and businesses were going out, splashing out a lot of money, and that was driving up prices. That’s not what’s happening this time around. Instead, we’re seeing energy prices affecting overall inflation measures. So against that backdrop, the Bank of Canada is likely to stay very, very neutral. They’re not going to show their cards. They’re going to say, “We think policy is in a very good place to manage the uncertainties facing the economy right now. We’re not willing to push it very dramatically in one direction or the other.” And they’re not going to provide us any guidance as to when they expect to hike in the future. I don’t think they’re in a place yet that they want to give us a clear hawkish bias and let markets run with that. So, unfortunately, for those expecting some volatility here, the Bank of Canada next week might be something of a non-event.
LINDSAY: What about the fact that we are now in a technical recession? Do you think that sways or changes anything for the Bank of Canada or, as you were saying, maybe just not yet?
KARL: Not yet, and you’re very much on point there. It definitely does. It does tell them something about the state of the economy. The fact that we did not see the economy essentially grow for the last two quarters is a reflection of that weak underlying demand. But I would also point out that a lot of the swing in GDP that showed up in the first quarter and the last quarter of 2025 was really driven by trade issues and recalculations, inventories, things like that, that do not tend to reflect the long-term direction of the economy. So we know that the Canadian economy is sort of moribund right now, that it’s very, very weak, but that print does not necessarily represent an apocalyptic outlook for the Canadian economy. So this is an economy that needs support, that is starting to come in, but it’s not an economy that requires emergency-level stimulus right now.
LINDSAY: All right, we’ll leave it there. Karl Schamotta, chief market strategist at Corpay. Really appreciate your time. Thanks for joining us.
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This BNN Bloomberg summary and transcript of the June 2, 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.
