Loonie heads for best month since April as Bank of Canada hike and oil lift currency

The Canadian dollar is on course for its biggest monthly gain since April, up 1.9 per cent in October, after the Bank of Canada raised interest rates for the first time in more than three years and elevated oil prices bolstered the commodity currency.

The loonie climbed as much as 0.2 per cent against the US dollar on Thursday, touching its strongest level in more than a month. It had already been lifted last week when Alberta voters rejected separation from Canada, easing political uncertainty in the country's main oil-producing province.

The currency "benefited from the Bank of Canada's rate hike yesterday and from elevated oil prices given Canada's position as a major exporter," said Andrew Hazlett, a foreign-exchange trader at Monex Inc.

The central bank raised rates on Wednesday to ward off upside inflation risks from higher energy prices, saying it would judge whether more increases are needed one decision at a time. It has grown increasingly concerned that higher oil prices stemming from the conflict in the Middle East could feed through to other goods and services. Canadian inflation accelerated to 3.1 per cent in September as gasoline prices climbed.

While the market had expected the hike, the Bank of Canada's inflation forecasts "were more aggressive than anticipated, suggesting further moves ahead," said Sarah Ying, head of FX strategy at CIBC Capital Markets. The bank now sees inflation averaging 3.1 per cent in 2027, up from a previous 2 per cent forecast, and does not expect it to return to the 2 per cent target until the middle of 2028. "Given that the Bank of Canada's hiking cycle is still young relative to peers," Ying said, the currency has further room to strengthen.