The Canadian dollar CADUSD strengthened against its U.S. counterpart on Wednesday as data showing the domestic economy grew stronger than expected in the first quarter bolstered bets for another interest rate hike by the Bank of Canada.
Canada’s economy expanded at an annualized rate of 3.1% in the first quarter, eclipsing forecasts for an increase of 2.5%, and likely accelerated further in April.
“Certainly a beat on GDP and that is moving the needle on rate hike odds for next Wednesday’s (Bank of Canada) meeting,” said Michael Goshko, senior market analyst at Convera Canada.
Money markets see a roughly 40% chance that the BoC will hike next week for the first time since January, up from 28% before the data.
The Canadian dollar was trading 0.2% higher at 1.3575 to the greenback, or 73.66 U.S. cents, recovering after it touched its weakest intraday level since Friday at 1.3651.
For the month, it was down 0.2%, its second straight month of modest declines.
The gain on Wednesday for the loonie came despite losses on Wall Street and further volatility in the price of oil, one of Canada’s major exports.
U.S. crude oil futures settled nearly 2% lower at $68.09 a barrel, pressured by gains for the U.S. dollar against a basket of major currencies and worries about the demand outlook after weak data from top oil importer China.
Canadian government bond yields were lower across the curve, but the move was less than for U.S. Treasuries.
The 2-year eased 4.8 basis points to 4.210%, while the gap between it and the equivalent U.S. rate narrowed by 4.5 basis points to about 17 basis points in favour of the U.S. note.