USD/CAD drops as Bank of Canada set to hike again

Investing.com – USD/CAD fell Tuesday, with just a day to go until the Bank of Canada is expected to deliver its second-straight rate hike after following a surprise hike last month.

USD/CAD fell 0.20% to 1.3253.  

The Bank of Canada is expected to lift rates by 0.25% to 5% on Wednesday after resuming rate hikes last month following a five-month hiatus.

About 70% of traders are expecting the bank to lift rates on Wednesday.  

The expected hike comes as some suggest that a decision to not hike would revive bets on rate cuts and trigger an easing in financial conditions, undoing the BoC's work so far and putting it in an uncomfortable position for months until the next rate decision in September.

"To not hike this coming week when a hike is mostly priced could risk inviting renewed easing of financial conditions...and be taken as a sign that the BoC is wavering once more," Scotiabank Economics said in a note.

The policy decision will be accompanied by a fresh set of economic projections including updated inflation and growth updates.

The latest inflation showed consumer inflation slowed to 3.4% in May from a year earlier, down from 4.4% in April, marking the lowest inflation rate in two years.

The central bank has previously projected inflation to slow to around 3% in the middle of this year, and drop to its 2%  target in 2024.