After the Bank of Canada's unexpected decision to raise its policy rate by 100 basis points, USD/CAD dipped below 1.2950 in the American session on Wednesday but recovered above 1.30 early Thursday. Economists at ING expect the loonie to struggle to gain some ground in the near-term.

Chances of USD/CAD moving back below 1.25 by year-end have risen

“We think that the BoC’s faster hiking could help the currency in the longer run but for now, external factors (eg, global risk sentiment, oil prices) continue to play a much bigger role and may keep CAD gains capped in the near-term.” 

“However, with CAD now sharing the highest policy rate in the G10 (2.50%) with the New Zealand dollar, and still counting on a decent economic outlook thanks to positive commodity exposure, the chances of USD/CAD moving back below 1.25 by year-end (barring a prolonged USD strength) have risen.”