The Canadian dollar drifted lower on Wednesday after the central bank said it expects to pause rate hikes if economic developments remain largely in line with its outlook.
Bank of Canada raised the overnight rate by 25 bps to 4.5%, as expected. Financial conditions remain restrictive but eased since October, the BoC noted, and the Canadian dollar has been relatively stable against the U.S. dollar.
The central bank expects global economic growth to slow to ~2% in 2023 and 2.5% in 2024, slightly higher than its earlier outlook.
“In Canada, recent economic growth has been stronger than expected and the economy remains in excess demand. Labor markets are still tight,” it said. “However, there is growing evidence that restrictive monetary policy is slowing activity, especially household spending.”
The Canadian dollar weakened 0.2% against the U.S. dollar, to 1.339 ($0.7469), as of 13.29 pm ET, compared with 1.335 (~$0.749) ahead of the rate decision.
Similarly, Invesco CurrencyShares Canadian Dollar Trust ETF (NYSEARCA:FXC) inched 0.2% lower, and iShares MSCI Canada Index (NYSEARCA:EWC) dipped 0.3%.
Last month, the BoC lifted policy rate by 50 bps to 4.25%.