Loonie jumps after BoC removes reference to 'gradual' rate hikes

In their policy statement, Bank of Canada officials explained that the removal of that adjective was meant to avoid the impression that rates would move higher in a preset fashion.

In any case, markets read a more hawkish bias into the change, pushing the Greenback down by 0.6% against the Loonie to 1.30085.

Loonie is traders' monicker for the Canadian dollar.

"This is to avoid the impression that we are following a preordained, mechanical policy path," they said.

"The appropriate pace for interest rate increases will depend on Governing Council’s assessment at each fixed announcement date of how the outlook for inflation and related risks are evolving."

Significantly, according to analysts at TD Securities, the BoC said it spent a "considerable" amount of time discussing the implications of the new trade deal with Mexico and the US.

"The USMCA is good news because it will reduce an important source of uncertainty that has been holding back business investment," rate-setters in Ottawa said in their statement.

They went on to add that even before the deal was announced, investment intentions had already been high.

So-called 'core' measures of inflation meanwhile were running at about 2.0% "consistent with an economy that is operating at capacity".

On foreign trade, the dispute between the US and China continued to weigh on the outlook for the global economy, the monetary authority said.

They estimated that the tariffs already announced to date and threats of future measures were already set to knock-off 0.3 percentage points off the rate of global growth by the end of 2020.

"The conflict could worsen, jeopardizing important global value chains. This would surely reduce long-term growth and prosperity globally, although the overall implications for inflation would be uncertain," they added.

Complicating matters, should it finally worsen, the implications for inflation were described as ambiguous.

TD Securities's forecasts were calling for another interest rate hike from the BoC in January 2019, followed by yet another two in July and October.

Commenting on the BoC's decision, TD Securities said: "The upbeat communique was not necessarily echoed in the MPR, as both GDP and inflation saw downward revisions.

"That said, the BoC is notably more convinced on the growth rotation narrative thanks to the NAFTA resolve, which likely prompted the hawkish tweaks in the policy statement."