Bank of Canada Hikes to 2.50% as Expected; CAD Muted on Day, Set for Strongest Month Since April
| Pair | Now | Since publish |
|---|---|---|
| USDCAD | — | — |
- BoC hiked 25 bps to 2.50%, first increase since July 2023
- USD/CAD fell third straight session, near 1.3970, lowest since September 16
- Pair on track for third weekly loss as dollar weakens on Middle East diplomacy hopes
- Trump approved Vance’s outreach to Iran to restart peace talks
The Bank of Canada raised its overnight rate by 25 bps to 2.50% on Wednesday, its first increase since July 2023. Policymakers said the move was meant to stop high energy prices from spreading into other prices. Markets had priced roughly a 78-81% chance of a hike after hawkish remarks from Governor Macklem, although a Reuters poll showed only 19 of 34 economists expecting one.
The Monetary Policy Report lifted inflation forecasts, with the 2027 projection raised to 3.1% and inflation seen above target until mid-2028. Macklem said firms plan to pass on more cost increases, that there is no pre-determined path for rates, and that further hikes may be needed amid high uncertainty.
USD/CAD swung both ways around 1.4050 after the decision and was little changed, with the Fed’s hold at 3.75%-4.00% adding little. The pair slipped toward 1.3975 in Asia on Thursday, then rebounded to about 1.4007 after US PCE and GDP data supported hawkish Fed bets and a firmer DXY near 102.25. Bloomberg reported the CAD is heading for its largest monthly gain since April, helped by elevated oil prices.
Analyst views on the path differ. Standard Chartered and Rabobank expect another hike in December to 2.75%, while ING sees rates peaking at 2.75% and keeps a year-end USD/CAD target of 1.420. Commerzbank considered the hike premature given subdued core inflation but noted oil risks could justify further tightening.
USD/CAD fell for a third straight session on Friday, trading near 1.3970 in one report and sliding to a fresh low since September 16, near the mid-1.3900s, in the Asian session. The pair is on course for a third consecutive weekly loss. The move is driven by a broadly weaker US Dollar, which has fallen for a third day on hopes of a diplomatic resolution to the Middle East conflicts and a slump in US bond yields. Crude oil prices were steady to slightly lower, which limited the Canadian Dollar’s gains. A Wall Street Journal report said US Vice President JD Vance contacted Mohsen Rezaei, Secretary of Iran’s Supreme National Security Council, on Wednesday to try to restart peace talks. President Donald Trump confirmed he approved the outreach.