BoC rate hike offers little traction for Canadian Dollar

USD/CAD remains stable, with the Canadian Dollar finding little support from the BoC rate increase.
25 bps takes the BoC interest rate to 2.50%, with further tightening still possible.
December rate hike expectations take centre stage as markets await the Fed’s interest rate decision.

USD/CAD trades near 1.4050 at the time of writing. The pair is broadly unchanged in Wednesday’s American session, with the Canadian Dollar (CAD) drawing little support from the widely expected Bank of Canada (BoC) interest rate increase. The decision initially triggered swings in both directions.

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

Further rate increases remain an option. The central bank said, “There could be a need to increase the policy rate further, but given uncertainties, the Governing Council agreed to proceed carefully.” It also reaffirmed 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. The BoC forecasts Consumer Price Index (CPI) inflation at around 3.5% by year-end, followed by an average of 3% in 2027. That is a percentage point above its July forecast. Inflation is then expected to ease to 2% in mid-2028.

At 18:00 GMT, the Federal Reserve (Fed) delivers its monetary policy announcement, now the market’s focus. Ahead of the decision, the US Dollar remains firm. The US Dollar Index (DXY), which measures the Greenback against a basket of six major currencies, is trading around 102.40, close to two-week highs.

Following September’s 25-bps increase, policymakers are widely expected to hold interest rates at 3.75%-4.00%. Inflation risks remain skewed upwards, putting Fed Chair Warsh’s comments under scrutiny for signals of a December hike. Markets assign an 85% probability to that outcome, according to the CME FedWatch Tool.

Keeping rates unchanged while maintaining a hawkish stance could underpin the US Dollar and lift USD/CAD. By contrast, a less hawkish message could lead traders to reduce bets on a December rate increase, putting pressure on the Greenback.

Today’s Canadian Dollar Performance

The Canadian Dollar (CAD) recorded its strongest performance against the New Zealand Dollar today. The table below sets out its percentage changes against the listed major currencies.

	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 major currencies are displayed in the heat map. Select the base currency from the left-hand column and the quote currency from the top row. For instance, choosing the Canadian Dollar on the left and following its row across to the US Dollar gives the percentage change for CAD (base)/USD (quote) in the corresponding cell.