The Canadian Dollar strengthened during Wednesday’s afternoon trading session following a surprise decision from the Bank of Canada (BoC) to raise interest rates to 1.0%. This helped the Canadian Dollar to drop below 1.60 against the Pound, a level which hasn’t been tested since January of this year. The Canadian Dollar also surged to a 2 year high against its US Dollar counterpart following the announcement of the BoC’s decision to raise rates, the exchange rate dropped nearly 3 cents in a matter of seconds.
The markets weren’t anticipating an interest rate hike quite yet. In fact, a recent poll had showed a 41% chance of a rate hike at today’s BoC meeting, with most analysts expecting a rate move in October instead.
One of the main reasons for an interest rate hike was the exceedingly strong upturn in Q2 economic growth, in particular Q2 GDP figures which showed a 4.5% increase from the last quarter. The Bank of Canada have made it clear that any future interest rate decision will be made solely on economic data releases, and as such have not given any further signals to monetary policy decisions. Reading around the subject, it seems as though the consensus is for another rate hike in the last quarter of 2017 with the momentum leading into another rate rise in early 2018. As previously mentioned, this is dependent on how the Canadian economy reacts to the interest rate hike, with particular attention being paid to household debt moving forward.
For now, the markets remain fairly volatile. The Canadian Dollar has also further benefitted against the US Dollar following US Federal Reserve Vice President Fischer’s decision to step down due to personal reasons. This could mean a US interest rate hike is off the cards for now and as such saw investors remove funds away from the USD, ultimately weakening it.