Canadian Dollar Surges as Bank of Canada Raises Rate Hike Expectations

The Canadian dollar has been on a roll lately, and it shows no signs of slowing down. Over the past two trading sessions, USD/CAD has declined by approximately 0.7%, highlighting a bearish bias in favor of the Canadian currency.

This selling pressure is largely due to recent announcements from the Bank of Canada, which have shifted monetary policy expectations and reflected a loss of momentum in the U.S. dollar.

The Bank of Canada's decision to leave interest rates unchanged at 2.25% was widely anticipated, but the tone adopted during the press conference was more interesting. Policymakers appeared increasingly cautious regarding inflation, highlighting that upside inflation risks have started to build.

This concern is driven by higher oil prices and trade environment pressures between Canada and the United States. As a result, markets have started pricing in the possibility of a future rate hike, with some expectations models showing probabilities above 40% for a rate increase at the late-October meeting.