Canadian Dollar Surges As Hawkish BoC Raises Rate Hike Expectations

By Christopher Vecchio, Currency Analyst

The Bank of Canada left key interest rate on hold at 1.00 percent for the thirteenth consecutive meeting today, but the real story lies within the central bank’s statement accompanying the release. The BoC said that higher rates “may become appropriate” in the future as actual economic growth and price pressures have exceeded economists’ forecasts.

Governor Mark Carney said that “In light of the reduced slack in the economy and firmer underlying inflation, some modest withdrawal of the present considerable monetary policy stimulus may become appropriate .” Governor Carney went on to say that “ The timing and degree of any such withdrawal will be weighed carefully against domestic and global economic developments.” Market participants have taken this as a sign that the BoC will move to raise rates in the coming months, with the Credit Suisse Overnight Index Swaps now showing that 18.0-basis points are being priced in over the next 12-months (from 0.9-bps ahead of the meeting).

USDCAD 1 -min Chart: April 17, 2012

Charts Created using Marketscope – Prepared by Christopher Vecchio

On the more hawkish than expected tone, as market participants have started to price in higher rates in the future, the Canadian Dollar has soared across the board, but most notably against the Euro and the Japanese Yen. The EURCAD has dropped over 95-pips on the rate decision (UPDATE: as of 14:28 GMT, the EURCAD was down over 110-pips post-rate decision). Similarly, the CADJPY jumped over 65-pips (UPDATE: as of 14:28 GMT, the CADJPY was up over 75-pips post-rate decision). The USDCAD also traded lower, falling over 60-pips immediately (UPDATE: as of 14:28 GMT, the USDCAD was down over 70-pips post-rate decision).

--- Written by Christopher Vecchio, Currency Analyst

To cont act Christopher Vecchio, e-mail

Follow him on Twitter at @CVecchioFX

To be added to Christopher’s e-mail distribution list, send an e-mail with subject line "Distribution List" to .
DailyFX is the forex news and research arm of FXCM, Inc (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.

Original Article: