Loonie rises to one-week high after BoC flags rising inflation risks

# What moved the loonie Thursday, reaching about C$1.3817 per U.S. dollar, its strongest level in more than a week. That move extended a rebound that began after the currency hit C$1.3939 on Tuesday. Intraday trading on Thursday ranged roughly between C$1.3813 and C$1.3848.

# Why the Bank of Canada mattered The immediate market driver was the Bank of Canada (BoC). The central bank kept its policy rate at 2.25% for a seventh straight meeting—an outcome markets expected. The deciding factor for currency traders was tone rather than action: Governor Tiff Macklem and the BoC highlighted rising inflation risks. That caution encouraged investors to increase bets that borrowing costs could rise at some point, supporting the loonie versus the U.S. dollar.

The BoC specifically pointed to two inflation pressures: elevated energy prices and the effects of U.S. tariffs on Canada. Those elements pushed market participants to reassess the probability of future tightening even though no rate move was announced on Thursday.

# Commodities and trade dynamics Oil helped too. Higher crude prices tend to lift the Canadian dollar because Canada is a major energy exporter, and the coverage notes oil provided additional support for the currency. At the same time, markets are factoring in the narrowing interest-rate gap between Canada and the United States—an influence that can limit how far the loonie can strengthen if U.S. yields remain relatively higher.

Trade relations with the United States are also on traders' radar. The BoC referenced U.S. tariffs as a potential upward pressure on prices, and market participants are watching whether trade tensions between Ottawa and Washington ease. The direction of those tensions has a direct bearing on the loonie's longer-term path.

# Forward-looking outlook The story cites a Reuters poll projecting the loonie to weaken modestly to about C$1.39 per U.S. dollar over the next three months. The same poll sees it strengthening to around C$1.36 in 12 months on an assumption that U.S.-Canada trade tensions subside. These projections reflect two offsetting forces: commodity-driven support for the loonie and the influence of U.S. monetary policy and yields.

# What traders should watch next

• Oil price moves, since the loonie remains sensitive to energy market shifts.
• U.S. yield movements and U.S. policy signals, which affect the Canada-U.S. interest-rate gap.
• Developments on U.S.-Canada trade relations and tariffs, which the BoC flagged as an inflation risk.

The recent move was driven by a mix of central bank guidance and commodity strength rather than an outright shift in monetary policy. That suggests the loonie's path will remain sensitive to news on inflation, oil, and cross-border trade.