Supported by BOC’s Rate Hike, Loonie Extends Rally Versus Dollar After Yellen’s Dovish Comments

The Canadian dollar continued to edge higher versus its American counterpart on Thursday after having taken off in the previous session. The pair USDCAD tumbled to nearly-thirteen-month lows after the BOC raised interest rates while Fed Chair Yellen did not sound as hawkish as expected.

The Loonie added nearly 0.1 percent to trade around C$1.2741 in Asian morning session after rallying more than 1 percent to C$1.2681 overnight – its strongest level since June 23rd 2016.

The Bank of Canada on Wednesday hiked its interest rates by 25 basis points for the first time in roughly seven years. As the rate hike had already been expected by markets, the Loonie was actually supported by upbeat statement released by the central bank which supported the view of more hikes in coming months.

According to data from the overnight index swaps market, there is a greater than 80 percent chance of another rate increase by December.

Meanwhile, the dollar lost ground against most of its peers following the Federal Reserve’s Chair Janet Yellen’s semiannual appearance before Congress on Wednesday. Yellen expressed confidence in the U.S. economy but also signaled that monetary tightening won’t be more than gradual given low inflation growth. Yellen’s comments echoed her colleague – Federal Reserve Governor Lael Brainard’s view.

Brainard on Tuesday said she wanted to “monitor inflation developments carefully” and that the Fed’s current policy rate was not far from its neutral level. The Fed official claimed that further increases in the federal funds rate should be considered cautiously in order not to restrain inflation growth.

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