Bank of Canada rate hike sends the loonie to an 11-month high

Canadian dollar

(Reuters) – The Canadian dollar shot to a near 11-month high
against the greenback on Wednesday and stocks gave up early gains
after the Bank of Canada’s first interest rate hike in seven
years and on anticipation of more to come.

The rate increase was widely anticipated but an upbeat statement
supported the view of more hikes in the coming months, even as it
said future moves would be guided by economic data given
“continued uncertainty and financial system vulnerabilities.”

The Bank of Canada raised its official interest rate by 25 basis
points to 0.75 percent, citing more confidence in its outlook.

“It reads hawkish. We are probably going to see them reduce more
stimulus later this year provided that the outlook holds up,”
said Andrew Kelvin, senior rates strategist at TD Securities.

Data from the overnight index swaps market showed a nearly 80
percent chance of another rate increase by December, while
Canada’s 2-year yield touched its highest since September 2014 at
1.172 percent.

At 10:51 a.m. ET (1451 GMT), the Canadian dollar was trading at
C$1.2823 to the greenback, or 77.98 U.S. cents, up 0.7 percent.
The currency hit its highest since Aug. 19, 2016 at C$1.2810.

The loonie has soared 5 percent since the Bank of Canada turned
hawkish in June, while the 2-year yield has jumped more than 40
basis points over the same period.

Toronto stocks, which rallied sharply ahead of the rate increase,
pared earlier gains.

The Toronto Stock Exchange’s S&P/TSX composite index reversed
course after earlier gains, falling 11.16 points, or 0.07
percent, to 15,137.98.

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“The Bank of Canada rate decision was a bit of sobering news for
the Canadian market,” said Paul Taylor, chief investment officer
of fundamental equities at BMO Asset Management Inc. (Reporting
by Solarina Ho and Fergal Smith; Editing by Meredith Mazzilli)

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