Loonie Rebounds on BoC Inflation Warning, Rate Hike Bets Soar
The Canadian dollar rebounded from its lowest level in nearly three weeks against its US counterpart on Wednesday, as investors increased their bets on an interest rate hike by the Bank of Canada.
According to RBC Capital Markets strategists Jason Daw and Simon Deeley, the Bank's emphasis on upside inflation risks 'caught the market off-guard'. They noted that policymakers are prepared to raise borrowing costs multiple times if inflation remains too high.
The loonie was trading 0.4% higher at 1.3840 per US dollar after earlier touching its weakest level since August 13 at 1.3939.
Investors now see a 44% chance of a quarter-point rate hike next month, up from 24% before the policy announcement. They have also fully priced in a move by year-end.