BoC: The rise in rate hike expectations is likely to support CAD – Commerzbank

As expected, the Bank of Canada (BoC) hiked its key rate by 25 bps to 5% on Wednesday. CAD was able to appreciate. Economists at Commerzbank analyze Loonie's outlook.

BoC maintains its restrictive tone

The BoC sounded restrictive, without committing to anything for the coming months, so the market assumed it might hike interest rates again should this become necessary. That means a hike is more likely as the next step rather than a pause in the cycle.

The market seems to perceive the BoC as being restrictive. It will now keep a close eye on the inflation data next Tuesday to decide whether a further rate step will become increasingly likely. If that is the case, the rise in rate hike expectations is likely to support CAD.