Skip to main content

Market News Canadian dollar hits one-week high on prospect of faster BoC rate hikes

The Canadian dollar strengthened to a one-week high against its U.S. counterpart on Wednesday after the Bank of Canada opened the door to a faster pace of tightening as it raised interest rates, as expected, for the fifth time since July 2017.

The central bank increased its key interest rate by 25 basis points to 1.75 per cent and said it would continue to hike to at least 2.5 per cent to keep inflation in check, while it dropped previous references to a gradual pace of tightening.

“The Canadian dollar is reacting to the removal of gradual from the Bank of Canada statement,” said Adam Button, chief currency analyst at ForexLive. “The market sees the changes in the statement as a hint that rates could rise faster.”

Story continues below advertisement

The central bank targeted a neutral stance for interest rates, which it estimates to be between 2.5 per cent and 3.5 per cent.

Money markets implied a policy rate of 2.43 per cent in December 2019, up from 2.37 per cent before the rate announcement.

“The biggest question mark is how are households going to react to the higher rates,” said Darcy Briggs, a Calgary-based portfolio manager at Franklin Bissett Investment Management.

Elevated levels of household debt could leave Canada’s economy more sensitive than usual to higher interest rates. Canada’s household debt-to-income ratio rose to 169.1 per cent in the second quarter, near a record high.

At 2:25 p.m. (1825 GMT), the Canadian dollar was trading 0.6 per cent higher at 1.3009 to the greenback, or 76.87 U.S. cents. The currency touched its strongest level since Oct. 17 at 1.2969.

Gains for the loonie came even as the U.S. dollar climbed to its highest in more than two months against a basket of other major currencies.

The price of oil, one of Canada’s major exports, rebounded after several days of weakness as a much bigger-than-expected drawdown in U.S. gasoline and diesel inventories augured for a coming seasonal increase in refining demand.

Story continues below advertisement

U.S. crude oil futures were up 0.7 per cent at $66.90 a barrel.

Canadian government bond prices were lower across much of a flatter yield curve, with the two-year down 9 Canadian cents to yield 2.321 per cent and the 10-year falling 3 Canadian cents to yield 2.453 per cent.

The gap between Canada’s 2-year yield and its U.S. equivalent narrowed by 8.7 basis points to a spread of 53.0 basis points in favour of the U.S. note, its narrowest since Aug. 28.

Report an error
Tickers mentioned in this story
Unchecking box will stop auto data updates
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

Cannabis pro newsletter