Canadian dollar edges higher as BoC hikes rates

• Bank of Canada raises rates by 25 basis points
• US unemployment claims surprise to the upside
• Canada releases employment report on Friday

The Canadian dollar is in positive territory on Thursday, after posting gains for two straight days. In the North American session, USD/CAD is trading at 1.3346, down 0.22% on the day. The Canadian dollar hit a high of 1.3320 on Wednesday, its highest level in a month.

Bank of Canada surprise

The Bank of Canada surprised the markets and delivered a 25-basis point hike on Wednesday. The markets had expected a third successive pause in rate hikes. The BoC has said that its “conditional pause” stance would be data-dependent and the acceleration in inflation and GDP was too much to ignore and the Bank felt it had to act. The rate statement highlighted the upswing in inflation and GDP as well as concerns over sticky core inflation and the possibility of inflation becoming entrenched above the 2% target.

The Canadian dollar climbed about 60 points after the BoC decision but pared most of these gains. Still, the Canadian dollar has looked sharp in June, with gains of 1.6%.

Market attention has shifted to Canada’s May employment report, which will be released on Friday. Job creation has been solid and came in at 41,400 in April, and the May estimate stands at 23,200. The BoC, which highlighted the tight labour market in yesterday’s rate statement will also be keeping an eye on wage growth, an important driver of inflation.

In the US, unemployment claims rose to 261,000, up from 233,000 prior. The US labour market has been surprisingly resilient in the face of relentless rate hikes from the Fed, but there have been some cracks, such as a jump in the unemployment rate in the May report. The sharp rise in unemployment claims may raise speculation that the Fed’s tightening is finally cooling down the hot labour market.                                 .

USD/CAD Technical

• There is support at 1.3375 and 1.3250
• 1.3496 and 1.3585 are the next resistance lines

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