- The USD/CAD reaction was subdued, with the pair hovering in the 1.3160-1.3201 range, following the Bank of Canada decision.
- The Bank of Canada opened the door for further hikes as core inflation continued to widen.
- Fed’s Mester: Will decide the magnitude of the hike at the September meeting.
The USD/CAD is rising despite the Bank of Canada’s recent decision to raise rates by 75 basis points, from 2.50% to 3.25%, amid mixed market sentiment, with most global stocks falling except for US ones. At the time of writing, the USD/CAD is up 0.18% and is trading at 1.3173, above its opening price.
USD/CAD Extends Gains Despite BoC Rate Hike
The Loonie failed to gain traction after the BoC decided to raise rates. The central bank signaled that they would have to rise more, given the outlook for inflation. According to the BoC, core inflation continues to widen, especially in services, reiterating its commitment to price stability and adding that it will take the necessary steps to reach the 2% target.
USD/CAD reeled from the headlines, approaching 1.3163 and then rising to 1.3201 before stabilizing at current exchange rates.
Meanwhile, on the Canadian economic docket, August’s Ivey Purchasing Managers’ Index was released, coming in at 60.9 seasonally adjusted, while unadjusted it rose by 57.1.
At the same time, Cleveland Fed President Loretta Mester made a statement. Mester said the latest labor market report showed signs of moderation. She added that markets should focus on the path of interest rates and not “one particular meeting”. Furthermore, she stated that she will decide the size of the rate hikes at the September meeting, and that she is not convinced that inflation has peaked yet.
Earlier, the US trade deficit narrowed in July as exports hit a record high, which could see trade continue to contribute to Gross Domestic Product (GDP) in the third quarter.
On Thursday, an absent Canadian economic docket will leave traders watching for USD dynamics. Initial jobless claims for the week ending September 3 will be released on the U.S. calendar, along with statements from Fed members, led by Chairman Jerome Powell, Chicago Fed President Charles Evans , and Minnesota’s Neil Kashkari.
Technical levels
Source: Fx Street
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