BoC Maintains Interest Rates Hike.

Canadian Dollar

Inflation readings have eased in this morning’s print, making two months of ease. This indicates that the Bank of Canada’s interest rate hikes front-loading is slowly impacting the economy. The Bank of Canada has the highest policy rate among other advanced economies after another 0.75% hike at their recent meeting.

As the central bank continues to ensure that inflation does not become entrenched, the policymakers of The Bank of Canada have continued to maintain interest rates hike. However, the BoC’s aggressive stance caused a weakening of the labor market due to the hike in the unemployment rate.

Traders continue to price another 50 bp rate hike from the BoC at next month’s meeting despite the labor market weakness. In addition, the markets expect an additional 25 bp hike in December.

USD/CAD spiked higher above 1.3300, exceeding resistance to mint fresh session highs after the data release. The cross had increased throughout the European session as the USD gained a renewed bid ahead of tomorrow’s FOMC interest rate decision.

Although inflation remains high in Canada, a cooling of CPI may fuel bets that the BoC may begin to slow down its aggressive pace of tightening. In addition, Loonie, which has allowed USD/CAD to stretch to fresh YTD highs, has been affected by weaker oil prices.

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