The USDCAD currency pair was trading down over 65 pips as the Canadian dollar rallied against the US dollar after the Bank of Canada (BoC) hiked interest rates by 0.25% to 5%, as most analysts and investors widely expected.
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The currency pair’s performance was also underpinned by the US dollar’s weakness, triggered by the latest inflation data release. The US CPI data came in below analysts' consensus estimates of 0.3% monthly, triggering a massive US dollar selloff.
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The BoC’s decision to hike rates by a further 25 basis points demonstrated the Canadian central bank’s willingness to act against the stubborn inflation witnessed in the country. However, whether Canadian inflation will respond to the rate hikes quickly is unclear.
On the other hand, the Fed’s ten consecutive rate hikes have paid off immensely as the US monthly CPI fell to 0.2%, missing analysts estimates by 0.1%. At the same time, the annualised print came in at 3.0%, missing consensus estimates of 3.1%.
Most investors interpreted today’s weak US inflation data as a sign that the Fed might be forced to leave interest rates stable at its July meeting. The market's expectations contributed to the US dollar’s overall weakness against most currencies during the American session.
The Bank of Canada stated, “The Governing council remains concerned that progress towards 2% inflation target could stall, jeopardizing return to price stability.”
The Canadian dollar’s performance was also boosted by the rise in the crude oil price as tracked by the West Texas Intermediate, which was trading slightly higher for the second consecutive day lifting the commodity-linked currency.
The US dollar’s weakness spread across most major currencies, including the euro and the Sterling pound, as tracked by the US Dollar Index, which pits the dollar against other leading currencies.
Investors are now waiting for the Federal Reserve monetary policy meeting scheduled for July 25-26, when the Federal Open Market Committee shall announce its interest rate decision.
*This is not investment advice.
The USDCAD price chart.
The USDCAD currency pair was trading down over 65.2 pips (0.49%) as the Canadian dollar rallied against the US dollar.
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