US Dollar Surges Past Six-Week High Amid Fed Rate Hike
The US dollar has reached a six-week high against Canada's dollar following the Federal Reserve's interest rate hike. The quarter-point increase was widely expected, but the Fed's tone still had an impact, as it reaffirmed that inflation remains too high and signalled its willingness to maintain tight policy until reaching its 2% target.
The resulting higher interest rates typically support a currency, allowing global investors to earn more on US cash and bonds. This lifted the greenback by 0.4% to CA$1.3963. Meanwhile, the yield on the 10-year US Treasury note edged lower after recently pushing above 5%, indicating that bond investors think tighter policy may cool growth later on.
The move had contrasting effects on commodities: oil prices fell over 3% due to a Saudi pipeline outage expected to be resolved in days, while gold rose as traders weighed the implications of higher rates for the economy. The strengthening dollar will have immediate consequences for Canadians with USD-denominated expenses, such as US travel or online shopping.