Forex News – Bank of Canada holds rates but issues hawkish statement, loonie rises

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The Canadian dollar rose against its U.S. counterpart to its highest level in more than two months after the Bank of Canada held its key interest rate steady, but hinted more firmly than before that it would resume hiking rates soon as the sturdy domestic economy contrasts with rising risks globally.

Keeping its overnight rate at 1 percent, the BoC said core inflation will reach its 2 percent target earlier than it had forecast and that it sees economic growth speeding up in the second half of this year after a second-quarter slump.

The BoC’s rate statement included comments that were more hawkish than markets anticipated, saying that “stimulus is to be withdrawn”, and removed the word “eventually” . The hawkish report boosted the loonie to a two-month high against the U.S. dollar.

“There is a vague shift in the tone of the statement, toward slightly more hawkish,” said Camilla Sutton, chief currency strategist at Scotia Capital.

“So in terms of what the market will price in, (it) will probably pull forward their expectations for interest rate hikes ever so slightly,” she said.

USDCAD fell from the pre-news high of 0.9552 down 70 pips to 0.9545.