The central bank raised its benchmark overnight rate to 1% from 0.5% and said it would allow government bonds it amassed during the COVID-19 pandemic to roll off as they mature from April 25, beginning what is known as quantitative tightening.
The BoC last hiked by half a percentage point in May 2000, favoring instead quarter-point increments. The Reserve Bank of New Zealand also hiked by half a percentage point on Wednesday as central banks globally move to tackle runaway inflation.
"Today's 50 basis point rate hike by the Bank of Canada, while expected, still caused a bit of loonie appreciation," said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets.
"People who would otherwise be buying the loonie on the back of rising oil prices and also recovering equities, those people were sidelined by the event risk and now it is over they have come in to add to loonie longs."
U.S. shares rose, helped by a rebound in growth stocks on falling bond yields, while the price of oil, one of Canada's major exports, was up 3.2% at $103.86 as investors grew more discouraged about peace talks between Russia and Ukraine.
The Canadian dollar was trading 0.6% higher at 1.2570 to the greenback, or 79.55 U.S. cents, rebounding from its weakest intraday level since March 17 at 1.2676.
Canadian government bond yields were lower across the curve, tracking the move in U.S. Treasuries. The 10-year eased 2.7 basis points to 2.619%, after touching on Tuesday its highest intraday level in more than eight years at 2.735%.
(Reporting by Fergal Smith; Editing by Will Dunham and Diane Craft)
By Fergal Smith
