BoC has signaled its readiness to raise interest rates again, as the service sector prices are expected to boost Canada's inflation outlook.

USD/CAD pair continued to decline and retested the key level of 1.3400 in Thursday's (April 13th) trading. Three factors contributed to this movement: the rise in global oil prices, the depreciation of the USD due to the weakening US inflation data, and the latest statement from the Bank of Canada.

usdcadUSD/CAD Daily chart via TradingView

The Bank of Canada (BoC) decided yesterday to maintain its benchmark interest rate at 4.50%, which has been in effect since January, in line with consensus estimates. At the same time, BoC Governor Richard Tiffani "Tiff" Macklem dismissed speculation about a potential interest rate cut that has been widely discussed among market participants.

"The implied expectations in the market that we will cut (interest rates) at the end of this year do not seem like the most likely scenario for us," said Macklem in his press conference following the BoC policy meeting.

The BoC policy guidance instead signals readiness to raise interest rates again, as the pace of price increases in the service sector has the potential to boost their inflation projections. They believe that demand continues to outpace supply in the economy due to a strong labor market, providing room for accommodating higher interest rates.

The Canadian dollar strengthened following this latest BoC policy statement. However, some analysts still believe that the BoC will cut interest rates before the end of the year.

"A lot has happened since the January MPR. But most importantly, inflation has come down faster than the Bank had previously anticipated and financial conditions have tightened on the back of banking sector turbulence outside of our borders," says Randall Bartlett, Senior Director of Canadian Economics at Desjardins Bank.

Bartlett believes many factors will further weigh Canada's labor market and economy. According to him, this situation will guarantee that BoC will cut interest rates by the end of the year. If this prediction is accurate, speculation about BoC interest rate cuts will likely resurface soon.