Loonie Surges as BoC Fights Inflation with Rate Hike Bets

The Canadian dollar rebounded on Wednesday after hitting its weakest level in nearly three weeks against the US dollar, as investors increased their bets on a Bank of Canada interest rate hike.

The loonie was trading 0.4% higher at 1.3840 per US dollar, or 72.25 US cents, after touching its lowest point since August 13.

The Bank of Canada kept its key policy rate at 2.25%, but Governor Tiff Macklem warned that policymakers would raise borrowing costs multiple times if inflation remained too high, citing upside risks from energy price pass-through.

Investors now see a 44% chance of a quarter-point rate hike next month, up from 24% before the policy announcement, with some predicting a move by year-end.