BoC rate hike fails to give Canadian Dollar momentum

Following the BoC rate rise, the Canadian Dollar finds little support, leaving USD/CAD broadly unchanged.
A 25 bps increase takes the BoC’s interest rate to 2.50%, with further tightening still possible.
December rate-rise expectations come into focus ahead of the Fed’s interest rate decision.

A widely expected interest rate rise from the Bank of Canada (BoC) has offered little support to the Canadian Dollar (CAD), leaving USD/CAD broadly flat during Wednesday’s American trading session. Following swings in both directions immediately after the announcement, the pair is trading at around 1.4050 at the time of writing.

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A 25 basis point (bps) increase took the BoC’s policy rate to 2.50%. Explaining the decision, the Governing Council said the rise was necessary “to reduce the risk that continuing high energy prices spread broadly to the prices of other goods and services.”

Further rate rises remain possible, with the central bank stating, “There could be a need to increase the policy rate further, but given uncertainties, the Governing Council agreed to proceed carefully.” It also stressed that “the Bank remains committed to maintaining Canadians’ confidence in price stability.”

A return to the 2% inflation target will take longer under the revised projections. Consumer Price Index (CPI) inflation is expected by the BoC to reach around 3.5% by year-end, then average 3% in 2027, a percentage point higher than its July forecast. It is then projected to ease to 2% in mid-2028.

With the Federal Reserve’s (Fed) monetary policy decision due at 18:00 GMT, the focus is shifting to the US. The US Dollar remains firm ahead of the announcement. Around 102.40, the US Dollar Index (DXY), which measures the Greenback against a basket of six major currencies, is trading close to two-week highs.

Following September’s 25-bps increase, policymakers are widely expected to keep interest rates at 3.75%-4.00%. Inflation risks remain skewed to the upside, making Fed Chair Warsh’s comments a key focus for traders seeking signals of a December rise. Markets assign an 85% probability to such a move, according to the CME FedWatch Tool.

If the Fed holds rates while retaining a hawkish stance, the US Dollar could draw support and USD/CAD could move higher. By contrast, a less hawkish message could lead traders to pare back expectations of a December rate rise, putting pressure on the Greenback.

Canadian Dollar Performs Best Against New Zealand Dollar Today

Today’s percentage moves in the Canadian Dollar (CAD) against the major currencies listed are set out below. Its strongest performance was against the New Zealand Dollar.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		-0.06%	0.10%	0.14%	0.01%	-0.08%	1.25%	0.12%
EUR	0.06%		0.16%	0.21%	0.07%	-0.02%	1.31%	0.18%
GBP	-0.10%	-0.16%		0.04%	-0.09%	-0.19%	1.15%	0.00%
JPY	-0.14%	-0.21%	-0.04%		-0.14%	-0.22%	1.09%	-0.04%
CAD	-0.01%	-0.07%	0.09%	0.14%		-0.09%	1.23%	0.11%
AUD	0.08%	0.02%	0.19%	0.22%	0.09%		1.34%	0.20%
NZD	-1.25%	-1.31%	-1.15%	-1.09%	-1.23%	-1.34%		-1.11%
CHF	-0.12%	-0.18%	-0.01%	0.04%	-0.11%	-0.20%	1.11%

Percentage movements between the major currencies are displayed in the heat map. Select the base currency in the left-hand column and the quote currency in the top row. To read CAD (base)/USD (quote), for instance, choose the Canadian Dollar on the left and follow that row horizontally to the US Dollar column; the intersecting cell gives the percentage change.