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Canadian dollar rises after BoC holds rates at 2.25%

The Bank of Canada kept its policy rate at 2.25%, with MUFG citing a shift toward upside inflation risks that could limit any CAD rebound.

Reported · Written up by our desk · Major Pairs

The Canadian dollar gained immediately after the Bank of Canada left its policy rate unchanged at 2.25%, though commentary from the central bank signaled greater concern about inflation, according to FXStreet citing MUFG's Derek Halpenny.

MUFG said the communications hinted at a possible earlier hike, but it doubts a sustained rebound in CAD, pointing to short term valuation signals that imply the USD/CAD rate should be higher.

The firm also tied near term currency performance to risks including oil and Middle East developments, noting heightened risk that energy prices could spill over into broader inflation measures even if underlying inflation is contained.

MUFG added that its short term valuation model suggests USD/CAD is currently undershooting, with the 2-year swap spread divergence aligning with a range it expects of 1.40 to 1.41.

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