USD/CAD tumbles to four-week lows near 1.3320 after BoC surprise interest rate hike

• Bank of Canada raises policy rate by 25 basis points to 4.75%. 
• Loonie jumps across the board following the decision. 
• USD/CAD approaching April and May lows. 

The USD/CAD plummet toward 1.3300 following the decision of the Bank of Canada (BoC) to raise its key interest rate taking markets off guard. The Loonie is outperforming on the back of the BoC decision. 

The BoC raised interest rates by 25 basis points to 4.75%, against market consensus. In its statement, the central bank mentioned increasing concerns about the Consumer Price Index inflation getting “stuck materially above the 2% target”.

The BoC's decision follows an unexpected rate hike from the Reserve Bank of Australia (RBA) on Tuesday and comes ahead of next week’s decisions from the Federal Reserve, the European Central Bank, and the Bank of Japan.

Before the announcement, the USD/CAD was trading around 1.3390, but it quickly dropped to 1.3319, reaching the lowest level since May 8. The bias for the pair is clearly to the downside, moving towards critical medium-term support levels. It is approaching the April and May-June lows at 1.3299 and 1.3314, respectively. The next support area is the January lows around 1.3360.

USD/CAD daily chart