Canadian Dollar Sees Little Change as Fed Holds Rates After BoC Hike

• USD/CAD fluctuates around 1.4050 after the BoC rate hike, with little reaction to the Fed's unchanged rates.
• Rates move from 2.25% to 2.50% as the BoC delivers its first increase since July 2023.
• Friday brings Canada's August GDP release, with Statistics Canada's estimate pointing to 0.2% growth.

USD/CAD is trading below 1.4050 after crossing that level in both directions within the five-minute bar following the Bank of Canada (BoC) announcement. Its subsequent decline on the Fed statement halted above the low recorded before either decision. Wednesday's BoC increase to 2.50%, alongside the Fed's decision to leave rates at 3.75%-4.00%, narrowed the Fed's rate advantage by a quarter-point in a single session.

With its first hike since July 2023, the BoC sought to prevent elevated energy prices from feeding through to other prices, leaving the Fed's rate advantage at 1.25-1.50 points. In its Monetary Policy Report (MPR), the BoC lifted its 2027 inflation projection from 2.0% to 3.1%, with a return to near 2% not expected until mid-2028. According to BoC Senior Deputy Governor Rogers, policymakers broadly agreed that inflation risks had increased.

The same report upgraded the 2026 growth projection from 0.7% to 1.0%, while BoC Governor Macklem said rates remained low enough not to constrain growth. Although the BoC indicated that another increase may be necessary, it said it would move cautiously. TD Economics anticipates one further hike to 2.75%, which would narrow the Fed's current rate advantage to 1.00-1.25 points.

Which upcoming releases could shape rate decisions?

The next decisions from both the Fed and the BoC are due on December 9, with forthcoming data feeding into their deliberations. On Friday at 12:30 GMT, Statistics Canada will release August Gross Domestic Product (GDP), following its advance estimate of a 0.2% increase. A day earlier, also at 12:30 GMT, US third-quarter growth figures and September's Personal Consumption Expenditures Price Index (PCE) are due.

Whether the Fed's rate advantage over the BoC widens again on December 9 will depend in part on Fed Chair Warsh's comments about December. His Wednesday press conference begins at 18:30 GMT, after the BoC's move. Speaking at the International Monetary Fund (IMF) meetings on October 16, he said other central banks shared his concerns about elevated inflation.

What does the chart indicate?

Since the BoC announcement, USD/CAD has remained in the lower half of Wednesday's trading range, which extends from just above 1.4000 to just below 1.4100. The session high came before the decline ahead of the BoC release. Intraday momentum, meanwhile, moved towards overbought territory heading into the Fed decision.

USD/CAD chart: 5-minute timeframe