As the Bank of Canada pauses its interest rate hikes, investors are betting that the sensitivity of Canada's economy to higher borrowing costs will result in a historically large gap between the tightening campaigns of the BoC and the U.S. Federal Reserve.
A lower expected peak for Canadian rates has pressured the Canadian dollar against its U.S. counterpart. The currency hit a four-month low on Wednesday at 1.3815, or 72.39 U.S. cents, after theA weaker currency could drive up the cost of imported goods for Canadians, adding to inflation pressures.
Money markets expect the BoC's policy rate to peak at about 4.75% this year, or roughly 90 basis points below the expected end point of the Fed. , "Poring over the national accounts, it's increasingly clear that interest-sensitive demand has wilted in Canada," Warren Lovely and Taylor Schleich, strategists at National Bank of Canada, said in a note after the recent GDP data.
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