Summary:
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Bank of Canada hike rates as expected
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CAD rallies on hawkish outlook
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ZAR falls back after budget misses
There’s been a strong move higher in the Canadian dollar in the past few minutes after the Bank of Canada announced another interest rate hike. The move higher of 25 basis points to 1.75% for the overnight rate was widely expected with markets giving such an event as high as a 93% probability beforehand. GIven this the hike itself isn’t likely to be the cause of the pop higher in the Loonie, rather it is a clear hawkish shift in the accompanying statement. Perhaps the biggest takeaway is the dropping of the word “gradual” from the statement when describing how rates will be increased going forwards, implying that the pace may well be faster going forward. In addition the bank also upgraded its outlook for investment and exports and committed to raising rates to a neutral setting.
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The Canadian dollar has rallied since the release and is higher on the day against all of its peers. The largest gains are seen against the Euro (1.2%) and the GBP (1.0%). Source: xStation
It should be pointed out that the press conference with Governor Poloz and Deputy Governor Wilkins is still to come, so there could be a change in narrative, but if this doesn’t occur then this looks like it will provide a big boost for the Loonie. The USDCAD has broken back below the 1.30 since the release and in doing so the market appears to remain in the falling channel which dates back to early summer. 1.3075 had provided some support in recent session but the break below there is significant and this is now the first level to look to as resistance should price rise. If the market continues lower then there’s not much by the way of swing support until the 1.2885 level and if this move gains traction then further downside to the lower bound of the channel (currently around 1.2730) is possible.
USDCAD has fallen sharply in the past 25 minutes and while the press conference may throw up a surprise, it appears for now like the upper channel has been respected once more and the path of least resistance is lower. Source: xStation
While the Canadian dollar is one of the best performing currencies today, it’s a different story for the South African Rand which is coming under pressure after the latest budget missed targets. Finance Minister Tito Mboweni said government debt will peak two years later, and at a higher level, than previously forecast as the fiscal gap will widen further and state revenue will continue to undershoot. This is not surprisingly negative for the ZAR and there was a pretty swift drop of almost 1% against the USD when news broke. Government bonds also sold off with the 2026 issue climbing three basis points to 9.18%, erasing an earlier drop of 10 basis points.
USDZAR has bounced strongly today on the fall in the Rand and the market has now respected the longer term support around 13.98 once more and is threatening to breakout of a falling trendline going back to the highs in early September. Source: xStation
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