Canada leads the race towards neutral and the Bank of Canada is on course to deliver another 50bps cut Wednesday in the policy rate to 3.25%, said Societe Generale.

This would put the rate at the upper end of the neutral range of 2.25%-3.25%, wrote the bank in a note to clients. The mid-point of 2.75% will surely be reached in Q1 2025 and guidance to this extent should emerge in Wednesday's statement.

Q3 gross domestic product expanded 1.0% quarter-over-quarter seasonally adjusted annual rate, below the BoC's forecast of 1.5%. The unemployment rate rose by 0.3ppt last month to 6.8% and inflation returned to target last quarter.

This is a landscape that lends itself to further dialing back of policy restrictions, stated SocGen. The question that ostensibly presents itself for 2025 is whether Canada's rates will venture below neutral at 2.25% and into accommodative territory.

This isn't currently the market's working assumption, pointed out the bank. The OIS curve is pricing 2.6% in 12 months.

If that's terminal and the BoC pulls up in Q1, the Canadian dollar (CAD or loonie) should start stabilizing at some point in early 2025, added SocGen. United States tariffs and Federal Reserve policy are a wild card in the near term and could keep the loonie trading at a hefty discount above 1.40 relative to long-term metrics.

The two-year UST/GCAN spread is trading at 122bps, the widest level in 27 years.