BoC Sends CAD Soaring With Shock Rate Hike

BoC Sends CAD Soaring With Shock Rate Hike

Canada's annualized growth rate of 4.5 per cent in the second quarter led all G7 countries.

The Bank of Canada also cited recent better-than-expected data supports its view that growth is more "broadly-based and self-sustaining".

The bank's rate has returned to where it was at the start of 2015, when the central bank started slashing rates to stimulate a Canadian economy that had been waylaid by the oil price crash.

The last time the Bank of Canada's main interest rate sat above 1% was in early 2009.

The local stock market turned negative as investors retreated from rate-sensitive sectors including telecoms and utilities, which typically issue debt to pay for projects and pay out dividends that become less attractive when government bond yields rise.

News of Canada's strong second quarter GDP performance also strengthened the loonie against the USA greenback. The Bank continues to expect a moderation in the pace of economic growth in the second half of 2017, for the reasons described in the July Monetary Policy Report (MPR), but the level of GDP is now higher than the Bank had expected.

The Canadian dollar continued its upward climb on the news, trading up around 81.8 USA cents to gain about 1.2% on the day and 1.6% already this week.

Death toll in Rohingya boat accident off Bangladesh rises to 38
It is the first time in Rakhine's bitter and bloody crisis that Hindus have fled the country - a sign violence is billowing out. Nearly 400 people have died in Myanmar since the country's army stepped up a military crackdown on Rohingya Muslims last week.

Nevertheless, BoC said that while removing some of the "considerable" monetary stimulus that was in place was "warranted", further policy decisions were not "predetermined".

On Bay Street, the Toronto Stock Exchange's S&P/TSX composite index slipped 5.82 points to 15,084.33, after 90 minutes of trading, but it had been positive before the bank's 10 a.m. ET rate announcement.

Market watchers who predicted Bank of Canada Governor Stephen Poloz would keep interest rates unchanged this week argued he had the luxury to wait until October, noting inflation remained tepid.

The explanation regarding the Canadian dollar's rise suggests the central bank "isn't quite as obsessed" with the currency's value versus the USA dollar as traders had long believed, according to Bipan Rai, currency strategist with Canadian Imperial Bank of Commerce.

As is often the verbiage of central banks, no future moves are set in stone, as they will be determined by analysis of economic data and other developments.

The bank said there remains "significant geopolitical risks and uncertainties" around worldwide trade and fiscal policies that have weakened the USA dollar. Furthermore, given elevated household indebtedness, close attention will be paid to the sensitivity of the economy to higher interest rates.

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