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Talking Points:

  • The interest rate bump was relatively unsurprising, despite the large reaction in the Canadian Dollar
  • Hawkish comments from BOC officials contributed to the Canadian Dollar’s climb Wednesday
  • The Bank of Canada’s next scheduled interest rate announcement is December 5th, 2018

The Bank of Canada (BOC) expectedly hiked its overnight benchmark rate by 25 basis points Wednesday, resulting in an interest rate of 1.75%. Although largely unsurprising, the rate decision and monetary policy report brought with it a large reaction in the Canadian Dollar. Therefore, the reaction was likely due to the latter, which bolstered the case for a hawkish Canadian central bank.

In the report, Bank of Canada officials found the Canadian economy to be near its full potential and the outlook for growth stable. A renewed sense of trade stability from the freshly inked USMCA agreement also contributed to their case for further hikes. However, as the central bank seeks to reach a neutral rate, they did highlight some areas of concern.

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The most notable concern was the outlook for emerging market economies. Officials found the case for growth in many emerging countries to be slipping as trade wars and energy cost uncertainty weigh on growth expectations. Still, officials were confident in the Canadian economy moving forward.

USD/CAD Price Chart (1) Daily, Year-to-Date

USD/CAD price chart on rate decision

Despite a breakthrough on NAFTA and relatively higher crude prices, the Canadian Dollar has slipped notably versus the US Dollar in the year-to-date. Up to Wednesday’s rate decision, the Loonie had surrendered well over 4% to the US Dollar.

USD/CAD Price Chart (2) Hourly, October

USD/CAD price chart plunge after rate change

Following the rate decision, the pair dipped precipitously to October’s trend line support. Despite the hawkish comments from the Bank of Canada, the Federal Reserve remains equally if not more-so committed to raising interest rates. Thus, the decision and report are unlikely to deliver any fundamental shift in the pair.

View our Economic Calendar for other important data releases like Friday’s US Q3 GDP.

The pair will now look to Friday’s release of US Q3 GDP data and core PCE data for influence. A sharp miss on either of these key figures could weigh on the Fed’s hawkish stance and culminate in a shift in fundamentals for the two North American Dollars, but such an outcome is highly unlikely.

--Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

Read more: Canadian Dollar Rebounds as Bank of Canada Hints at Hike Strategy

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