Bank of Canada Expects Higher Inflation

Note: This section contains information in English only.
Source: Dukascopy Bank SA
On June 1, the Bank of Canada hiked its Overnight Cash Rate from 1.00% up to 1.50%. In addition, the bank stated that it would continue its monetary tightening program.

The initial announcement caused a spike in the value of the Canadian Dollar. However, it almost immediately was reversed, as the markets spotted that in the official statement the Canadian central bank revealed that it expects inflation to continue to move higher. Namely, inflation has not peaked, as thought by some market participants.

Quoting the statement: "The Bank of Canada today increased its target for the overnight rate to 1½%, with the Bank Rate at 1¾% and the deposit rate at 1½%. The Bank is also continuing its policy of quantitative tightening (QT).

Inflation globally and in Canada continues to rise, largely driven by higher prices for energy and food. In Canada, CPI inflation reached 6.8% for the month of April – well above the Bank's forecast – and will likely move even higher in the near term before beginning to ease."

Released Document

Bank of Canada increases policy interest rate by 50 basis points, continues quantitative tightening

The USD/CAD reacted to the rate hike with a 18 point or 0.14% drop, before recovering from the low by 42 base points.

On a larger scale, the pair has been encountering a resistance zone throughout 2022. Meanwhile, the rate has been booking higher low levels.

Initial Reaction

Larger scale situation

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