Summary: The chances the central bank will cut interest rates on Oct. 30 jumped above 50 per cent Tuesday. It was only at 25 per cent last week

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The Bank of Canada is likely to join the U.S. Federal Reserve with an interest rate cut this year to deal with the fallout from rising trade tensions, according to trading in the swaps market.

Investors are betting Canadian policymakers will follow an expected U.S. rate cut in September. The chances of a Bank of Canada match at the Oct. 30 meeting jumped above 50 per cent Tuesday, up from about 25 per cent last week, according to data compiled by Bloomberg. The market is implying 20 basis points of easing over the next six months. The odds of a cut soared after U.S. President Donald Trump threatened to impose tariffs on Mexican products to stem illegal immigration, raising concerns about the ratification of the revised North America Free Trade Agreement.

“The data for Canada is unfolding in a manner about as expected, but the medium-term outlook has definitely been impacted by trade/tariff developments of late,” said Mark Chandler, head of fixed income research at Royal Bank of Canada, which sees the central bank on hold through 2020. “Most of the fear surrounds the potential impact on the U.S. factory sector. Analysts have not fully incorporated this into their forecasts, I believe, because of a belief that the tariffs may yet be avoided.”

Bank of Canada Governor Stephen Poloz said as recently as last month he still believes interest rates are poised to continue rising once headwinds to growth dissipate. “The natural tendency is for interest rates to still go up a bit,” Poloz said in an interview on BNN Bloomberg, adding he didn’t yet know the size or the timing of any increases.