As was widely expected, the Canadian overnight borrowing rate was increased 25 basis points to 4.50 percent. After the Bank of Canada left rates steady in May and said, “there is an increased risk that future inflation will persist above the 2 percent inflation target and that some increase in the target for the overnight rate may be required in the near term,” markets immediately started pricing in (correctly) a hike for today.
Looking at this month?s policy statement, the Bank of Canada was a bit less hawkish than expected, which led the Canadian dollar to plummet across the board. Upon first glance, the statement appears relatively bullish for the Loonie, as it said that “some modest further increase” in rates may be needed while also noting that growth and inflation have been stronger than forecast. Nevertheless, with higher interest rates and the appreciation of the Canadian dollar anticipated to “moderate” growth, another round of policy tightening is very unlikely in the near term. The Australian dollar and New Zealand dollar fared much better today, with Aussie conquering the 0.8600 level while Kiwi made a test of 0.7800. Australian data proved bullish for the national currency, with Investment Lending surging 8.9 percent in May from 0.7 percent as NAB Business Confidence maintained a two year high of 15. New Zealand data, on the other hand, was dismal with the NZIER business confidence survey falling to -37 in the second quarter from -15 the quarter prior. Nevertheless, Kiwi will likely remain relatively supported by an expected rebound in retail sales on Thursday.