The Canadian dollar weakened to around 1.41 per USD following the Federal Reserve’s latest policy decision, trading near a seven-month low. As widely expected, the Fed left interest rates unchanged, but its projections were interpreted as more hawkish than anticipated, with roughly half of FOMC members signaling expectations for at least one additional rate hike this year. The Fed also sharply raised its inflation forecasts, increasing the attractiveness of US assets and lending further support to the US dollar.
Meanwhile, the Bank of Canada kept its benchmark interest rate on hold at 2.25% at its most recent meeting. The central bank noted that uncertainty remains elevated amid the conflict in the Middle East and proposed US tariffs, but reiterated that it is prepared to act if necessary and will not allow elevated energy prices to result in sustained inflation. Markets are largely pricing in a 25-basis-point BoC rate hike in December.
