Bank of Canada Raises Interest Rates by 75 Basis Points
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Bank of Canada, USDCAD - Talking Points
The Bank of Canada (BoC) raised interest rates by 0.75% on Wednesday, firmly in-line with the market expectations. The rate hike comes as Canada looks to cool inflation that sits at 40-year highs. Majority of economists surveyed prior to the rate hike saw a 75 basis point move, with money markets were also effectively priced for 75 bps.
The hike brings the policy rate to 3.25%, the highest among major advanced economies. This also sees the BoC enter “restrictive” territory, as the bank remains keen on lowering sticky inflation. The policy statement showed that central bank officials remain keen on continuing rate hikes in the near future, stating the “Governing Council still judges that the policy rate will need to rise further.”
Canadian Economic Calendar
Courtesy of the DailyFX Economic Calendar
After largely front loading rate hikes in this tightening cycle, the BoC suggested in its policy statement that officials are beginning to think about slowing the pace of tightening. “As the effects of tighter monetary policy work through the economy, we will be assessing how much higher interest rates need to go to return inflation to target,” the statement read.
The broad nature of price pressures remains the main reason for the persistent tightening, as core inflation remains elevated while headline numbers fall. Today’s hike brings borrowing costs to their highest level since 2008, and also brings the BoC slightly above their neutral range of 2% to 3%.
USDCAD 5 Minute Chart
Chart created with TradingView
Following the rate hike, USDCAD saw an initial spike higher into the 1.3200 region before getting rejected. Price has struggled this week to make sustained breaks above the 1.3200, as USD strength cools slightly ahead of major event risk. Following this morning’s BoC meeting, focus will now shift to the ECB policy meeting where a 75 basis point rate hike is expected. USDCAD may be at the mercy of USD flows, which could be volatile with the ECB meeting and Fed Chair Jerome Powell set to speak as well. If the Canadian Dollar can sustain a bid, USDCAD may look to test recent support at the 1.3100 psychological level.
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--- Written by Brendan Fagan
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.