The Canadian dollar CADUSD strengthened against its U.S. counterpart on Wednesday as the Federal Reserve’s move to signal a possible pause in interest rate hikes offset additional pressure on oil prices.
The loonie was trading 0.2% higher at 1.36 to the greenback, or 73.53 U.S. cents, clawing back some of the previous day’s sharp decline.
“The (U.S.) dollar is getting crushed as the end of the Fed’s tightening cycle is likely here,” Edward Moya, senior market analyst at OANDA in New York, said in a note.
The greenback fell against a basket of major currencies as the Fed raised interest rates by a quarter of a percentage point and said it would watch incoming data to determine if more hikes “may be appropriate.”
The Bank of Canada has already moved to the sidelines but says it could tighten further if needed to return inflation to its 2% target.
BoC Governor Tiff Macklem is set to speak on Thursday about the challenges and risks in getting inflation back on target.
The price of oil, one of Canada’s major exports, settled 4.3% lower at $68.60 a barrel, its second straight day of steep losses, as investors fretted about the health of the U.S. economy.
Bullish Canadian dollar bets have been raised despite an expected global economic slowdown that could cloud the near-term outlook, with analysts in a Reuters poll saying the currency’s current level doesn’t reflect its fair value.
Canadian government bond were lower across much of the curve. The 10-year touched its lowest since April 6 at 2.769% before recovering to 2.798%, down 2.9 basis points on the day.