Bank of Canada Rate Hike Odds Jump as Oil Prices Fuel Concerns

Traders are increasingly betting that the Bank of Canada will raise interest rates as early as next month, according to LSEG Data & Analytics. The odds of a rate hike have jumped, with markets now seeing the October meeting as a coin flip.

Claire Fan, senior economist at RBC, said bond market pricing can be viewed as a consensus expectation for central bank decisions and also as a barometer for how market participants are viewing fresh economic data. She noted that the shift in odds toward a possible October hike is likely due to persistently high global energy prices tied to the war in Iran.

The Bank of Canada's governing council was worried late last month that oil prices were staying higher for longer, according to Wednesday's release of the summary of deliberations that led to its September 2 rate decision. Many economists remain unconvinced that the central bank will raise rates this year, but concerns that inflation could become a more persistent thorn have some pencilling in a tightening cycle to start in early 2027.