BoC Hawkish Stance Sinks USD/CAD Rate, Challenges MUFG Forecast

The Bank of Canada's decision to hold interest rates unchanged at 2.25% has led to a surprise drop in the US Dollar to Canadian Dollar exchange rate, from 1.3895 at the beginning of September to 1.3804.

MUFG had predicted that the central bank would leave rates unchanged and that tariff uncertainty would keep the Canadian dollar weak, but the BoC's more hawkish policy message has given the CAD enough support to push USD/CAD below 1.3850.

The BoC emphasized upside inflation risks and the possibility of more than one rate increase if price pressures remain elevated, which encouraged markets to reconsider the path for Canadian interest rates.