Canadian Dollar Rises Nearly 2% Ahead of Expected Bank of Canada Rate Hike
The Canadian dollar has climbed 1.8 percent this month as markets fully price in a Bank of Canada interest rate increase on Dec. 9, while the Federal Reserve is expected to hold rates steady.
The Canadian dollar rose 1.8 per cent to 71.3 cents United States in mid-morning trading on Tuesday, continuing a recovery from a year low of 70 cents U.S. hit in mid-October. The currency's recent strength has been driven by expectations that the Bank of Canada will raise interest rates while the Federal Reserve holds its benchmark lending rate steady.
Markets currently place the chances of an interest rate increase at the Bank of Canada's Dec. 9 meeting at 100 per cent. Many economists expect policymakers to hike rates on Wednesday by 25 basis points, bringing the rate to 2.5 per cent. In contrast, the Federal Reserve is expected to maintain its benchmark lending rate at 3.75 per cent to four per cent when it announces its latest rate decision on Wednesday.
Kyle Dahms, a senior economist at National Bank of Canada, noted that because the immediate rate decision is largely priced in, further support for the loonie may depend more on guidance about subsequent moves than on the decision itself.