The BoC raised its overnight rate by 25bps to 4.5%. This was as expected and is regarded as the current cycle's peak. The statement read that the central bank "expects to hold the policy rate at its current level."
The USD was sold off after the announcement, with the market expecting similar from the Fed next week.
The top shows the weekly chart of the USDCAD forex pair and the bottom chart shows the spread between the US and Canadian 2-year notes. From Q4, the USDCAD and the 2-year spread have been moving sideways (black arrows).
The 2-year notes are a good proxy for central bank policy. The correlation coefficient between the US and Canadian 2-year notes is a meaningful 83%. If this is to continue, a peak in Fed rates is imminent.
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.