BoC Sends CAD Soaring With Shock Rate Hike

Does the BoC Have More Hikes in Store?

The Bank of Canada unexpectedly raised interest rates on Wednesday by 25 basis points, triggering a sharp appreciation in the Canadian dollar and taking it to more than two-year lows against the greenback.

Having only raised interest rates for the first time since 2010 at the last meeting, traders were clearly of the belief that the BoC would hold off today and take a more cautious approach to tightening. Especially as there appeared no urgent need to do so, with inflation still well below target at 1.2%. Clearly policy makers at the central bank did not share this view, raising the overnight target rate to 1% and citing the stronger than expected economy in the process.

Interestingly, the BoC did also reference elevated household indebtedness and the impact that these rate rises could have on it. Perhaps the role of the consumer in the strong performance of the economy, driven by debt, is at least part of the reason the central bank is taking such pre-emptive action, despite price pressures not warranting it.

Given how sudden and drastic – by recent standards – the BoC’s moves have been, traders may now be wondering what more we can expect from the central bank. Today’s rally in the loonie may not just represent surprise at this particular decision but also a recalculation of what the central bank may do going forward. Two rate hikes in a row after such a sustained period of none is a bold move and traders may now be expecting more in the months ahead.

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Economic Calendar

The full BoC statement can be found here.

For a look at all of today’s economic events, check out our economic calendar.

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Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.