Canadian Dollar Rallies on Hawkish BoC Rate Hike, Later Trims Gains

The Canadian dollar today appreciated against its American counterpart after the Bank of Canada‘s interest rate decision, which was widely anticipated. The loonie’s rally served to drive the USD/CAD currency pair to fresh 2-day lows even as the BoC hinted at a hawkish stance on future monetary policy decisions.

The USD/CAD currency pair today dropped from a high of 1.3174 to a low of 1.3097 following the BoC announcement.

The currency pair headed lower after the Bank of Canada decided to raise its overnight rate target by 25 basis point to 1.50%, which was in line with expectations. In his speech after the rate announcement, BoC Governor Stephen Poloz stated that the situation in Canada was more concrete after the US tariffs came into effect. However, he cautioned that further tariff increases could lead to higher inflation and would slow down the country’s economy, which would increase the pricing pressures on the economy. He further stated that the Canadian economy was at a good place.

The Canadian dollar struggled to maintain its gains against the greenback, which was stronger against most of its rivals, as tracked by the US Dollar Index. The latest tariffs imposed on $200 billion of Chinese exports to the US by Donald Trump‘s administration have boosted the US dollar, which is regarded as a safe haven.

The currency pair’s future performance is likely to be affected by geopolitical events, tomorrow’s US CPI report, and Canadian house price index.

The USD/CAD currency pair was trading at 1.3127 as at 16:24 GMT having dropped from a daily high of 1.3174. The CAD/JPY currency pair was trading at 85.04 having risen from a low of 84.20.

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