Canadian Dollar Rises to 2-Month High on BoC Surprise Hike

The Canadian dollar strengthened past 1.335 per USD in June, the highest in two months, after the Bank of Canada defied market expectations and raised its key interest rate by 25bps to 4.75%.

The decision marked the resumption of the central bank’s tightening cycle after three consecutive holds, going against the BoC’s signal that rates could have peaked, and suggesting that borrowing costs in the Canadian economy were not as restrictive as policymakers expected.

Following the hike, policymakers maintained the forecast that headline inflation will slow to 3% by the summer, although the bank warned that price growth could remain sticky above the 2% target.

The latest data showed that the Canadian CPI rose by 4.4% in April, well above market forecasts of 4.1% and picking up from 4.3% in March.

In the meantime, crude oil prices bounced from recent lows and supported buying activity for the loonie.