Canadian dollar strengthens, bond yields rise after BoC’s rate hike

The Canadian dollar strengthened against its ​US counterpart on Wednesday and ‌bond yields rose as the Bank of Canada raised interest rates for the first time in more than three years, while the greenback posted broad-based ⁠declines after ​the Federal Reserve left borrowing costs unchanged.

The Canadian central bank hiked its key interest rate by 25 basis points to 2.50% and said further increases might be needed to prevent soaring ​energy costs from driving broader inflation.

“The initial ‌reaction was delayed given the mixed tone of the meeting, but ultimately rates are moving higher and Canada is giving back the outperformance from this morning,” Andrew Kelvin and other strategists at TD Securities said in a ‌note.

“The Bank ​of Canada has ‌a tendency to move consecutively after a long pause, and we ​see a lower bar for a subsequent ⁠hike in December,” the strategists said.

Investors see a 45% ⁠chance that the Canadian central bank will hike rates further in December ​and have fully discounted a second increase by January, swap market data showed.

The Canadian 2-year yield rose as much as 7.2 basis points to touch its highest level since August 2024 at 3.441% before pulling back to 3.406%. ⁠The 10-year was up 2.6 basis points at 3.857%.

The loonie was trading 0.3% higher at 1.40 per US dollar, or 71.43 US cents, after moving in a range of 1.3990 to 1.4068.

The Fed held interest rates steady, as expected, opting to delay ⁠any changes to borrowing costs until after ​next week’s US midterm elections and awaiting further data on the ⁠path of inflation.

The price of oil, one of Canada’s major exports, rose as fighting in ‌Yemen contributed to renewed concerns about additional supply disruptions from the Middle East. ​US crude futures settled 2.9% higher at $102.78 a barrel.

There has been limited progress in trade talks with the US to ease tariffs on Canadian steel and autos, a ​Canadian government official with knowledge of the discussions said.