USD/CAD struggles around 1.2980 as DXY stabilizes around 108.00

• USD/CAD is facing barricades around 1.2980 amid a rangebound DXY.
• The BOC has paddled its interest rates by 1% to tame the soaring inflation.
• An inflation rate above 9% in the US economy has opened doors for a 100 bps rate hike by the Fed.

The USD/CAD pair attempted a rebound from 1.2940 in the New York session and is now facing barricades around 1.2980 as the US dollar index (DXY) has stabilized around 108.00. Earlier, the asset displayed wild swings after the Bank of Canada (BOC) elevated its interest rate by 100 basis points (bps). Adding to that, the strong Consumer Price Index (CPI) report by the US also added fuel to the fire.

BOC Governor Tiff Macklem announced a rate hike by a whopping figure of 1% to 2.5%. The consensus for the extent of the rate hike was 75 basis points (bps). It takes a cold heart to announce a mega rate hike. To tame the inflation, the BOC was forced to create difficulties for the borrowers.

The extent of a rate hike is itself dictating that the inflation monster is no more a joke now. Costly fossil fuels and food products are accelerating the price pressures swiftly and the central bank was left with no other option than to announce the unusual.

Meanwhile, the DXY rebounded firmly after hitting a low of 107.48 on Wednesday. The inflation rate in the US economy has climbed to 9.1%, much higher than the estimates and the prior release of 8.8% and 8.6% respectively. Apart from that, the core CPI has been trimmed to 5.9% from the former print of 6%.

The higher inflation rate has bolstered the odds of one more 75 bps rate hike by the Federal Reserve (Fed). No doubt, the Fed could also follow the footprints of the BOC and may announce a rate hike by 100 bps as the plain-vanilla CPI has surpassed 9% and prior rate hikes have managed to bring a minute trim in the core CPI.