Canadian Dollar Weakens As BoC Slows Interest Rate Hike

The Canadian dollar dropped against its major counterparts in the New York session on Wednesday, after the Bank of Canada raised its policy rate by 50 basis points, instead of a 75 basis-point move expected by economists.

The BoC increased its target for the overnight rate to 3.75 percent and said that it is continuing its policy of quantitative tightening.

The Governing Council said that the policy interest rate would be required to rise further amid elevated inflation and ongoing demand pressures in the economy.

"Future rate increases will be influenced by our assessments of how tighter monetary policy is working to slow demand, how supply challenges are resolving, and how inflation and inflation expectations are responding," the bank said in the statement.

The BoC said that inflation is estimated to move down to about 3 percent by the end of 2023, and then return to the 2 percent target by the end of 2024.

Economic growth is expected to stall through the end of this year and the first half of next year as the effects of higher interest rates spread through the economy, the bank added.

The loonie fell to 1.3651 against the greenback, after hitting a 3-week high of 1.3507 at 7:30 am ET. If the loonie continues its fall, 1.39 is possibly seen as its next support level.

The loonie dropped to more than a 4-month low of 1.3697 against the euro and near a 3-week low of 0.8834 against the aussie, after rising to 1.3535 and 0.8683, respectively in early deals. The next likely support for the loonie is seen around 1.41 against the euro and 0.90 against the aussie.

The loonie dipped to a 2-day low of 107.34 against the yen, from a 2-day high of 109.02 touched at 12 am ET. Next key support for the loonie is likely seen around the 103.5 region.