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Market News Canadian dollar nears 8-month high on diverging U.S. and Canadian rate outlooks

The Canadian dollar firmed against its U.S. counterpart on Thursday, approaching last week’s eight-month high, as investors focused on the less-dovish policy guidance coming from the Bank of Canada compared with that of the Federal Reserve.

At 4:16 p.m. (2016 GMT), the Canadian dollar was trading 0.1 per cent higher at 1.3062 to the greenback, or 76.56 U.S. cents. The currency, which last Thursday notched an eight-month high at 1.3038, traded in a range of 1.3042 to 1.3080.

The outlook for the U.S. dollar remained grim after Federal Reserve Chair Jerome Powell’s bleak comments on the U.S. economy, which bolstered expectations of an interest rate cut later this month.

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In contrast, the Bank of Canada made clear on Wednesday it had no intention of easing monetary policy even as it highlighted the risks that trade wars posed to the global economy.

“If you look at the relative monetary policy, Canada versus the U.S., it still looks like divergence,” said Erik Bregar, head of FX strategy at the Exchange Bank of Canada.

Chances of an interest rate cut this year by the Bank of Canada were less than 35 per cent, data from the overnight index swaps market showed. Over the same period, the market expects at least two rate cuts from the Fed.

The price of oil, one of Canada’s major exports, fell as OPEC forecast slower demand for its crude next year. U.S. crude oil futures settled 0.4 per cent lower at $60.20 a barrel.

New home prices in Canada declined 0.1 per cent in May, after prices were flat for the previous three months, Statistics Canada said.

Canadian government bond prices were lower across a steeper yield curve in sympathy with U.S. Treasuries, after data showed U.S. underlying consumer prices increased by the most in nearly 1-1/2 years in June.

The two-year fell 3 Canadian cents to yield 1.602 per cent and the 10-year was down 35 Canadian cents to yield 1.623 per cent.

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