Canadian two-year bond yields edged higher and the loonie strengthened against the US dollar after the Bank of Canada left its policy rate unchanged at 2.25% on Wednesday, as expected, according to TD Economics in a note.
The policy statement struck a slightly hawkish tone, as the BoC pointed to rising inflation risks from higher energy prices, new US tariffs and Canada's retaliatory measures, said TD.
While acknowledging stronger than expected second-quarter growth, the BoC warned that renewed trade uncertainty could weigh on business and consumer confidence, with excess capacity still present in the economy, added the bank.
Canada's central bank said its current policy stance remains appropriate while reiterating that it is ready to adjust rates if economic conditions change.
Markets increased the probability of a 25 basis points rate hike by year-end to 65%, up from 60% before the BoC decision, according to TD.