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The loonie is climbing after the Bank of Canada raised its benchmark rate to 1.5%

stephen poloz

  • The Bank of Canada is raised its key rate on Wednesday by 25 basis points to 1.5%.
  • It marks the fourth rate hike since last summer.
  • Follow the Canadian dollar in real time here.

The Canadian dollar climbed Wednesday after the country's central bank raised its key rate by 25 basis points to 1.5%, marking the fourth hike since last summer.

The loonie climbed 0.3% versus the dollar following the announcement.

The policy meeting comes days after a strong jobs report. Canada added 31,800 jobs last month on a seasonally-adjusted basis, according to Statistics Canada, which beat economist expectations. Wages also picked up at a solid pace of 3.6% year-over-year.

Stephen Brown, a senior economist at Capital Economics who specializes in Canada, said he expected policymakers to focus on a strong rebound in construction jobs. Earlier declines "were due to unseasonably cold weather rather than a sign of trouble in the housing market," he said.

June also saw a rebounding housing market, which had been sluggish this year amid the implementation of stricter mortgage rules. Construction starts jumped 27.9% last month, Canada Mortgage and Housing Corporation said Tuesday, to a seasonally-adjusted 248,138. Economists had expected housing starts to come in at around 210,000. 

The Bank of Canada left its key rate unchanged at its June meeting, but dropped a reference to remaining "cautious" on monetary policy. Officials they expected housing activity to pick up, bolstered by solid labor income growth.

But the central bank also noted at the June meeting "ongoing uncertainty about trade policies." Tensions have been mounting between the US and Canada as President Donald Trump cracks down on trade policies.

Trump in May refused to extend steel and aluminum tariff exemptions to allies, including Canada. Canadian Prime Minister Justin Trudeau hit back with retaliatory tariffs on $12.6 billion worth of US products. 

"In the context of global trade tensions and the weakening macro story in Canada, we doubt the hike will do the loonie any favors," said Mark McCormick, head of North American FX strategy at TD Securities. 

SEE ALSO: Markets around the world are getting pummeled as Trump's trade war intensifies

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