Canadian Dollar Rallies as BoC Warns of Inflation Risks and US Dollar Weakens

The Canadian Dollar strengthened for the second consecutive day as the US Dollar weakened across the board. The Bank of Canada's (BoC) hawkish message at its September policy meeting, where it warned of increased upside risks to inflation, supported the Loonie.

Rising oil prices also provided an additional boost to the commodity-linked currency. At the time of writing, the USD/CAD pair traded around 1.3785, its lowest level in over a week.

The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, fell to near a one-week low of 99.00 after reaching 99.86 on Wednesday.

Federal Reserve Governor Christopher Waller's dovish comments added to the weakness in the US Dollar, as he stated that he is 'finally seeing some signs of disinflation in recent data' and would support keeping interest rates unchanged if the upcoming data confirm recent progress.

However, analysts at Brown Brothers Harriman caution that expectations for a rate hike before the end of the year may be too aggressive given core inflation is near the BoC's 2% target and indicators point to continued excess supply in the economy.