The Canadian Dollar (CAD) pares some of its losses against the US Dollar (USD) on Wednesday after a brief bout of strength following the Bank of Canada’s (BoC) monetary policy announcement.
At the time of writing, USD/CAD trades around 1.3925, recovering from an intraday low of 1.3899
The BoC kept its benchmark interest rate unchanged at 2.25% for a fifth consecutive meeting, in line with market expectations. In its monetary policy statement, the central bank said economic activity in Canada is weak, uncertainty surrounding US trade policy persists and the war in the Middle East keeps Oil prices elevated. The statement also noted that there has been limited evidence so far of a broad-based pass-through of higher energy prices to other consumer prices. “Governing Council is continuing to look through the war’s near-term impact on headline inflation, but will not let higher energy prices become persistent inflation.
As the outlook evolves, we stand ready to respond as needed,” the BoC said. BoC Governor Tiff Macklem said, “Any decision on a possible rate hike is less about a timeline and more about conditions.” Macklem also warned that “Higher energy costs triggering broad inflation may require consecutive rate hikes.” He added, “If we start to see core inflation drift up, that would certainly get our attention.” The balancing act between inflation concerns and weak economic growth suggests policymakers are not in a rush to tighten monetary policy. As a result, the Canadian Dollar struggles to build on its post-decision gains.