The Bank of Canada raised its overnight rate target by 25 basis points to 2.5% on October 28, its first increase since July 2023, citing elevated oil prices feeding through to broader inflation.
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.
Sources say Washington and Ottawa are negotiating lower tariffs on Canadian steel and auto imports, with a possible agreement before the November 3 midterms, though the talks remain unconfirmed.
Markets price an 81% probability the Bank of Canada raises its policy rate by 25 basis points to 2.50% this week after Governor Tiff Macklem signalled upward revisions to inflation forecasts. Economists remain split on whether the move is justified.
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.