USD/CAD Rises Ahead of BoC Decision Amid Hawkish Fed Expectations
The USD/CAD is rising ahead of the Bank of Canada's (BoC) interest rate decision today, despite expectations that the central bank will leave rates unchanged at 2.25%. The BoC finds itself between a rock and a hard place due to escalating trade tensions threatening economic growth while inflationary pressures weigh against any easing.
July's Consumer Price Index rose 3% year-over-year, remaining within the BoC's target range of 1-3%, giving the central bank little reason to consider a cut. Canada's manufacturing sector expanded for a fifth straight month in August, with output and employment increasing, but the outlook is deteriorating due to trade tensions.
The market now sees a 70% probability that the Federal Reserve will hike rates this month by 25 basis points, following a hawkish stance from Federal Reserve Chair Kevin Warsh at the Jackson Hole Symposium speech. The U.S. dollar is gaining on safe-haven demand and rising Treasury yields.