The Canadian dollar rose to an 11-month high against the greenback overnight, after the Bank of Canada’s decision to raise interest rates.
The BoC moved the benchmark cash rate up by 0.25% to 0.75%, and the “loonie” is buying more than US78 cents for the first time this year:
While the market had almost fully priced in the probability of a July rate hike, the CAD got more support from the central bank’s accompanying statement which was interpreted as more hawkish.
That raises the likelihood of more rate hikes in the coming months, although the BoC added that it’s decision would be dependent on more strong economic data given the lingering uncertainty in global markets.
The Bank of Canada’s more hawkish stance was somewhat in contrast to comments made by US Federal Reserve chair Janet Yellen in her testimony to Congress overnight.
Yellen said that the Fed would continue to be keeping a close eye on inflation data. While other economic indicators like employment are broadly positive, the rate of US inflation continues to lag.
Yellen’s comments were interpreted by the market to be more on the dovish side, although it didn’t change the markets forecast for the Fed to hike rates once more by the end of 2017.