Loonies Wild Ride: Bank of Canada (BoC) Hikes Rates

The Bank of Canada has hiked overnight rates by a +25 bps to +1.25% on the strength of stellar employment data and a pickup in inflation.

It can be viewed as a “dovish” hike as the BoC signalled a “gradual, cautious approach to further rate increases, warning uncertainty tied to the future of the North American Free Trade Agreement (NAFTA) is likely to exert a drag on growth.

“Recent data have been strong, inflation is close to target and the economy is operating roughly at capacity,” the Bank of Canada said in a statement. “However, the uncertainty surrounding the future of Nafta is clouding the economic outlook.”

Underlying economic fundamentals at home and abroad have strengthened, and would otherwise suggest a strong pickup in business investment and exports, the bank said. But trade-policy uncertainty on the North American front would slow growth in both categories, it said.

The CAD whipsawed on currency markets immediately after the BoC hiked its monetary policy rate. The USD is trading around C$1.2487 from C$1.2413 right before the release of the decision.

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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell