Canadian dollar sticks to tight range ahead of BoC rate decision

The Canadian dollar edged higher against the greenback on Monday but kept to its recent trading range, as Ontario announced earlier than planned easing of COVID-19 curbs and investors awaited a Bank of Canada interest rate decision this week.

The loonie was trading 0.1% higher at 1.2064 to the greenback, or 82.89 U.S. cents, having traded in a range of 1.2056 to 1.2106. Last Tuesday, it touched its strongest level in six years at 1.2007.

Ontario, Canada’s most populous province, said it will loosen COVID-19 restrictions starting June 11, three days ahead of schedule, as infection rates continue to drift lower.

The Bank of Canada is widely expected to leave its benchmark interest rate on hold at a record low of 0.25% on Wednesday. In April, the central bank signalled it could start hiking rates in late 2022 and tapered its bond purchases.

After lengthy domestic lockdowns and a weaker-than-expected rebound in the U.S. labour market, the Bank of Canada could dial back some of the optimism it showed at the last policy announcement in April,” Benjamin Reitzes, Canadian rates and macro strategist at BMO Capital Markets, said in a note.

“A more cautious tone from the BoC” is likely, Reitzes said.

Data on Friday showed that the U.S. economy added less jobs than expected in May, weighing on the U.S. dollar.

The price of oil, one of Canada’s major exports, touched its highest level since October 2018 at $70 a barrel before settling 0.6% lower at $69.23. Oil has been supported by expectations of improved demand and OPEC producers keeping supply curbs in place.

Canadian government bond yields rose across much of a steeper curve, with the 10-year up 1.8 basis points at 1.474%. On Friday, it touched its lowest since May 26 at 1.456%.

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