The Bank of Canada (BOC) assessed the economy as being in expansion, with Q2 looking "pretty solid" and the pickup in growth likely sustainable. However, Governor Tiff Macklem indicated that if oil prices rise again and feed into inflation, consecutive rate hikes may be needed to keep inflation under control. The central bank will take decisions one at a time, monitoring the sustainability of the recent pickup.
Currency Impact and Outlook
Canadian dollar weakness has not been a major factor in rate decisions, though widening yield spreads between the US and Canada have contributed to a softer loonie. USDCAD remained within its recent trading range, with a high of 1.4077 and a low of 1.4040, currently trading at 1.4051. On the hourly chart, a break below the 1.4015-1.4021 area (near June 11-12 highs) could target the 38.2% retracement of the move from the May 1 low at 1.39812.
Inflation and Growth Concerns
The BOC acknowledged questions about how sustainable the recent growth pickup is, but expressed confidence it will persist. The key risk remains oil prices: a renewed spike could stoke inflation, forcing the central bank to respond with multiple rate increases. For now, the BOC is taking a cautious, meeting-by-meeting approach.