USD/CAD Dives and Bounces Up on 50 bps Hike Form the BOC

The central bank bonanza started on Tuesday with the Reserve Bank of Australia (RBA) raising interest rates by 0.25% or 25 basis points (bps). The AUD didn’t benefit much from it though. Yesterday we had the Bank of Canada rate decision, which delivered a 50 bps hike. That sent UAS/CAD 100 pips lower to the 20 SMA (gray) on the H4 chart, but the price has bounced back up from there.

Bank of Canada Rate Decision

• Bank of Canada hikes rates 50 bps vs 50 bps expected
• Prior rate was 3.75%
• Prior statement said “the Governing Council expects that the policy interest rate will need to rise further” but this has been dropped
• “Governing Council will be considering whether the policy interest rate needs to rise further to bring supply and demand back into balance and return inflation to target”
• There is growing evidence that tighter monetary policy is restraining domestic demand
• Overall, the data since the October MPR support the Bank’s outlook that growth will essentially stall through the end of this year and the first half of next year.
• We are resolute in our commitment to achieving the 2% inflation target and restoring price stability for Canadians.
• Inflation is still too high and short-term inflation expectations remain elevated
• In Canada, GDP growth in the third quarter was stronger than expected, and the economy continued to operate in excess demand. Canada’s labour market remains tight, with unemployment near historic lows
• There’s no press conference today but the BOC’s Kozicki speaks tomorrow at 12:45 pm ET
• Full statement

This is exactly the scenario I laid out in my BOC preview. It’s 50 bps but the statement indicates the BOC will now ‘consider’ rates, which is another word for pausing.

USD/CAD Live Chart