USD/CAD slides following BoC’s rate decision

The USD/CAD falls during the US tgrading session after the Bank of Canada hiked rates by 50 bps, from 3.75% to 4.25%, in line with analysts’ expectations, triggering a fall from around 1.3700 to 1.3505. At the time of writing, the USD/CAD remains volatile, trading around 1.3600-1.3615.

The Bank of Canada mentioned that inflation worldwide remains high and broadly based. Even though growth is slowing, the BoC said that the US economy is proving to be resilient, with consumption rising and the labor market “overheated.” They commented that supply bottlenecks are easing, though geopolitical events could disrupt it.

The BoC acknowledged that the labor market is tight, and the Q3 GDP was stronger than expected and commented that “there is growing evidence that tighter monetary policy is restraining domestic demand, consumption moderated in the third quarter, and housing market activity continues to decline.”

The Governing Council noted that inflation remains too high, and short-term inflation expectations remain elevated. Traders should know that CPI is at 6.9%, while core CPI is around 5%.

The BoC finished its statement by saying that further rate hikes would be needed to bring supply and demand into balance, adding that Quantitative Tightening (QT) “is complementing increases in the policy rate.”