The Bank of Canada has hiked overnight rates by a +25 bps to +1.25% on the strength of stellar employment data and a pickup in inflation.
It can be viewed as a "dovish" hike as the BoC signalled a "gradual, cautious approach to further rate increases, warning uncertainty tied to the future of the North American Free Trade Agreement (NAFTA) is likely to exert a drag on growth.
"Recent data have been strong, inflation is close to target and the economy is operating roughly at capacity," the Bank of Canada said in a statement. "However, the uncertainty surrounding the future of Nafta is clouding the economic outlook."
Underlying economic fundamentals at home and abroad have strengthened, and would otherwise suggest a strong pickup in business investment and exports, the bank said. But trade-policy uncertainty on the North American front would slow growth in both categories, it said.
The loonie came under immediate pressure to trade north of the C$1.25 handle. It’s currently down -0.78% at C$1.2478.
