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Canadian dollar posts four-month high, pares some gains after Fed decision

A Canadian dollar coin.

MARK BLINCH/REUTERS

The Canadian dollar rose to a four-month high against its U.S. counterpart on Wednesday, boosted by data showing strong growth in Canada's economy, but some gains were pared as investors weighed the U.S. Federal Reserve interest rate decision.

At 4 p.m., the Canadian dollar was trading 0.3 per cent higher at $1.2300 to the greenback, or 81.30 U.S. cents.

The currency touched its strongest level since Sept. 20 at $1.2250. For the month, the loonie rose 2.3 per cent.

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Canadian gross domestic product rose by 0.4 per cent in November from October, Statistics Canada said. The increase was in line with economists' expectations and the biggest gain since May 2017.

"The loonie will go as the big dollar (U.S. dollar) goes, unless we see not just strong Canadian data but Herculean Canadian data," said Brad Schruder, director of corporate sales and structuring at BMO Capital Markets. "The market doesn't believe it (the data) is enough to move the needle for the Bank of Canada."

Chances of a rate hike at the central bank's next meeting in March were little changed after the data at about 25 per cent, the overnight index swaps market indicated.

The central bank has raised interest rates three times since July. Its benchmark rate sits at 1 per cent.

The U.S. dollar rebounded against a basket of major currencies after the Fed kept interest rates unchanged but said it anticipated inflation would rise this year, a sign it is still on track to raise borrowing costs in March.

Canadian Prime Minister Justin Trudeau said he did not think U.S. President Donald Trump would pull out of the North American Free Trade Agreement, despite slow progress at negotiations to update the $1.2-trillion trade pact.

Canada sends about 75 per cent of its exports to the United States.

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U.S. crude prices settled 0.4 per cent higher at $64.73 a barrel. Oil is one of Canada's major exports.

Canadian government bond prices were mixed across a flatter yield curve, with the two-year down 1.5 cents to yield 1.839 per cent and the 10-year rising 4 cents to yield 2.289 per cent.

The two-year yield touched its highest point since June 2011 at 1.849 per cent.

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