CAD Surges as BoC Warns of Higher Inflation Risks

The Canadian Dollar (CAD) strengthened against the US Dollar (USD) for the second consecutive day, driven by the Bank of Canada's (BoC) hawkish message and a weaker US Dollar. The USD/CAD pair fell to its lowest level in over a week at around 1.3785.

The BoC's policy meeting on Wednesday saw no change in interest rates, but the bank warned that 'the upside risks to inflation have increased.' This shift in tone led markets to bring forward expectations of a rate hike from January to December and firmed up odds of 75 to 100bps of tightening over the next twelve months.

Analysts at Brown Brothers Harriman cautioned, however, that this outlook may be too aggressive given core inflation is near the BoC's 2% target and indicators point to continued excess supply in the economy.