The Canadian dollar fell to a one-year low of 1.42 per USD in late June, moving in line with other G10 currencies as expectations of a more hawkish Federal Reserve bolstered the US dollar. Several FOMC members indicated the possibility of more than one rate hike this year amid firming US inflation.
In contrast, core inflation measures monitored by the Bank of Canada held close to the 2% target in May, despite a sharp rise in energy prices. This performance was consistent with the central bank’s earlier guidance that the conflict in Iran is likely to have only transitory effects on headline inflation.
At its most recent meeting, the Bank of Canada left its policy rate unchanged at 2.25% and emphasized that it views risks as balanced on both sides of its inflation and employment objectives, reflecting a highly uncertain economic environment.
