The Bank of Canada raised its benchmark rate by a quarter point to 2.50% on Wednesday, in line with forecasts and the first increase in more than two years. The decision has implications for USD/CAD and short-term Canadian bond yields.
USD/CAD is treading water close to the 1.40 mark as traders await rate announcements from the Bank of Canada and the US Federal Reserve. Economists point to narrowing cross-border yield gaps and growing odds of a BoC hike as the main forces at play.
Canadian Prime Minister Mark Carney said Monday that Canada has not shifted its stance in ongoing trade negotiations with the United States. USD/CAD edged up 0.06% to 1.4012.
Analysts at Royal Bank of Canada and TD Securities diverge on whether the Bank of Canada will raise its overnight rate from 2.25% at its October 28 decision, with TD expecting further tightening by early 2026.
Canadian retail sales rose 1.2% to $74.6 billion in August, with volumes also up 1.2%, lifting the Canadian dollar and pushing USD/CAD under the 1.4000 level.