The Canadian dollar today rallied higher against the US dollar after the Bank of Canada hiked its overnight lending rate by 25 bps meeting market consensus. The weaker US dollar also contributed to the USD/CAD pair’s decline as markets reacted negatively to Janet Yellen‘s testimony before Congress.
The USD/CAD currency pair lost over 130 points in a span of two hours after the BoC rate hike announcement.
The Bank of Canada announced a much-anticipated 25bps rate hike at today’s meeting given the recent hawkish comments from the BoC Governor, Stephen Poloz. Recent positive macro data from Statistics Canada have also set the stage for today’s rate hike although current inflation figures are quite soft. The BoC Governor stated that the effects of the rate hike on inflation shall be felt fully in the next 18â24 months. The BoC also released a positive July monetary policy report.
The USD/CAD currency pair was also affected by the Fed chairperson, Janet Yellen’s testimony before Congress today, which resulted in overall US dollar weakness, as tracked by the US Dollar Index. The Fed chair painted a dovish outlook in her prepared statement, while her comments that the current debt was unsustainable rattled investors. She also indicated that the Federal Reserve would start normalizing its balance sheet soon.
The currency pair’s future performance is likely to be affected by Yellen’s testimony before the US Senate tomorrow as well as global crude oil prices.
The USD/CAD was trading at 1.2768 as at 16:04 GMT having dropped from a high of 1.2940 earlier today. The CAD/JPY was trading at 88.61 having risen from a low of 87.40 before the rate hike.
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