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USD\/CAD spikes to a high of 1.3742\u00a0on Wednesday after the Bank of Canada (BoC) governing council decides to reduce its key interest rate by 0.25% to 4.75%, following its June policy meeting. The decision weighs on the Canadian Dollar (CAD) since lower interest rates<\/a> attract less foreign capital inflows. The US Dollar (USD) meanwhile gains a shot in the arm from a higher-then-expected reading for the ISM Services PMI in May, which continues to portray the sector in vibrant health.\u00a0<\/p>\n USD\/CAD rose by over 0.2% on Wednesday straight after the BoC governing council decided to make a cut to its key interest rate at its June policy meeting.<\/p>\n \u201cWith continued evidence that underlying inflation is easing, the Governing Council agreed that monetary policy no longer needs to be as restrictive and reduced the policy interest rate by 25 basis points,\u201d the BoC said in its policy statement<\/a>.\u00a0<\/p>\n The decision means the interest rate differential between the BoC and the US Federal Reserve<\/a> (Fed) has widened. The Fed\u2019s key interest rate is 5.0% – 5.25%. The higher interest available in the US is a draw for foreign capital and benefits the US Dollar<\/a>, which in turn is positive for USD\/CAD.\u00a0<\/p>\n The governing council noted that the BoC\u2019s preferred gauge of inflation stood at 2.7% in April which, although above the BoC\u2019s 2% target, was low enough to warrant a rate cut. In addition supply was overall greater than demand in the economy.\u00a0\u00a0<\/p>\n The Canadian economy\u2019s 1.7% growth in Q1 was slower than the BoC had forecast. Further \u201cweaker inventory investment had dampened activity\u201d and wage pressures had \u201cmoderated\u201d the governing council noted.<\/p>\n On the other hand, \u201cConsumption growth was solid at about 3%, and business investment and housing activity also increased. Labour market data show businesses continue to hire, although employment has been growing at a slower pace than the working-age population,\u201d the BoC statement said.\u00a0<\/p>\n In addition to cutting the target for its key overnight policy rate to 4.75%, the BoC<\/a> also cut the Deposit Rate to 4.75% whilst its Bank Rate at 5.0%.\u00a0<\/p>\n USD\/CAD gained a further boost following the release of higher-than-forecast ISM Services PMI data which showed the US services sector remained in rude health, in contrast to manufacturing which contracted during the same period.\u00a0<\/p>\n ISM Services PMI in the US rose to 53.8 in May, up from 50.8\u00a0in April and beating forecasts of 49.4. It was the highest reading in nine months. The growth was driven by a rise in New Orders. Firms held back on employing new staff, however, but wages increased.\u00a0<\/p>\nUSD\/CAD rallies after BoC decision<\/h2>\n
USD\/CAD gets second wind after ISM Services PMI surprises to the upside\u00a0<\/h2>\n