Home Daily Commentaries Bank of Canada hikes rates by 75 bps to 3.25%, as expected

Bank of Canada hikes rates by 75 bps to 3.25%, as expected

Daily Currency Update

The Bank of Canada raised its official rates by 75 basis points to 3.25%, as expected. Furthermore, the Bank of Canada signaled more hikes are needed to bring inflation back to the 2% target. It might hike its rate by 25 to 50 bps by October due to ongoing inflation and a tight labor market.

According to the Bloomberg interest rate probability, by January 2023, the Canadian overnight rate will be around 3.85% (close to 4%).

The USDCAD pair increased 0.2% in today's trading session at the time of this writing. However, the GBPCAD and CADJPY pairs favored the Canadian dollar; CAD increased by 0.12% and 0.9%, respectively. However, it fell against other G10 currencies.

In 2022, the primary catalyst of the USD and CAD's positive performance has continued to be the interest rates in North America, which are higher than in the rest of the G10 group.

Key Movers

Fed Vice Chair President Lael Brainard said the Fed would raise interest rates and continue to go to restrictive levels for "as long as it takes" to stop inflation; however, she added that risk would become more two-sided "at some point." Her last comment triggered a fall and profit-taking of the US dollar. The Dixie (DXY, USD dollar index) has fallen 0.3% so far.

The Pound fell to its lowest level against the US dollar since 1985, meaning that market participants are not convinced by the new Prime Minister Liz Truss's new government. Furthermore, the energy-price package might not help to stop sterling's decline (GBPUSD is down ~15% this year).

The Japanese yen is at levels not seen since June of 1998, when the Bank of Japan and the Fed jointly intervened to slow down the pace of depreciation.

Expected Ranges

  • EUR/CAD: 1.3013 - 1.3137 ▲
  • GBP/CAD: 1.5050 - 1.5170 ▼
  • AUD/CAD: 0.8833 - 0.8882 ▲
  • USD/CAD: 1.3130 - 1.3205 ▼