The Canadian dollar weakened against its U.S. counterpart on Wednesday, giving back some recent gains, as domestic data showed a steady profile for underlying inflation and after the Federal Reserve was less dovish than some investors expected.
The Fed, in a policy statement, for the first time linked its $120 billion in monthly bond purchases to a set of economic conditions, but did not change the type or pace of assets being purchased.
The statement was “slightly less dovish than expected,” boosting the greenback, said Erik Bregar, head of FX strategy at the Exchange Bank of Canada.
Canada’s annual inflation rate accelerated to 1.0 per cent in November, up from an increase of 0.7 per cent in October, while the average of the Bank of Canada’s three core measures was unchanged at 1.7 per cent, holding below the central bank’s 2 per cent target, data from Statistics Canada showed.
The Canadian dollar was trading 0.4 per cent lower at 1.2744 to the greenback, or 78.47 U.S. cents, its biggest decline since Nov. 12. Against the other G10 currencies, the loonie also lost ground.
On Tuesday, the loonie touched its strongest intraday level since April 2018 at 1.2684. Bank of Canada Governor Tiff Macklem said on Tuesday that recent strengthening of the currency was hurting Canada’s exports in the crucial U.S. market.
Separate data from Statistics Canada on Wednesday showed that Canadian wholesale trade rose by 1.0 per cent in October from September, the sixth consecutive monthly increase.
The price of oil, one of Canada’s major exports, was buoyed by U.S. government data that showed crude stockpiles fell last week and by optimism about a possible coronavirus relief package in the United States. U.S. crude oil futures settled 0.4 per cent higher at $47.82 a barrel.
Canadian government bond yields were mixed across a steeper curve, with the 2-year yield dipping 1.9 basis points to 0.247 per cent.
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