The Canadian dollar CADUSD weakened against its U.S. counterpart on Wednesday, giving up nearly all of the previous day’s gain, as Wall Street shares fell and minutes from the Bank of Canada’s January meeting signalled a high bar for further tightening.
The loonie was trading 0.3% lower at 1.3445 to the greenback, or 74.38 U.S. cents, after moving in a range of 1.3361 to 1.3449.
“The risk-trade has bled off here today,” said Adam Button, chief currency analyst at ForexLive. “Stock markets are adjusting to higher (U.S.) rates and that’s created some risk aversion.”
Investors have been concerned about how aggressive Federal Reserve tightening will be following Friday’s surprisingly strong U.S. jobs report.
Money markets expect two more hikes by the Fed over the coming months that would lift the central bank’s benchmark rate above 5%, while the BoC is seen on hold at 4.50%.
The BoC issued a so-called “summary of Governing Council deliberations” for the first time, saying it wanted to convey that the bar for additional rate increases was now higher.
“The market sees a widening spread between interest rates in the U.S. and Canada … It is mitigated by better prospects for global growth,” Button said.
The Canadian dollar is set to rise later this year as the global economic outlook turns more favourable for commodity-linked currencies and investors bet central banks will cut interest rates in 2024, according to a Reuters poll.
The price of oil, one of Canada’s major exports, rose for a third day. U.S. crude oil futures settled 1.7% higher at $78.47 a barrel.
Canadian bond yields were lower across the curve. The 10-year eased 5.6 basis points to 3.034% after touching on Tuesday its highest intraday level in nearly four weeks at 3.109%.