Canadian Dollar Rallies
The Bank of Canada on Tuesday maintained its target for the overnight rate at 4.25%, but suggested that future rate hikes might be needed to contain inflation.
In an accompanying statement, the central bank said information received since the April Monetary Policy Report indicates that economic growth and inflation in Canada in the first part of this year have been “stronger” than the bank was expecting.
The bank judges that “there is an increased risk that future inflation will persist above the 2% inflation target and that some increase in the target for the overnight rate may be required in the near term to bring inflation back to the target,” according to the statement.
“With this statement, the [Bank of Canada] has signaled it is prepared to hike interest rates by [a quarter percentage point] at its next meeting on July 10,” said Michael Woolfolk, senior currency strategist at The Bank of New York.
Woolfolk said the Canadian dollar could “easily reach 1.05″ against the U.S. dollar in the second half of this year.
The Canadian dollar, also known as the loonie, rallied on the news, last trading up 0.7% at C$1.0721 vs. the greenback.