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The Canadian dollar CADUSD strengthened against its U.S. counterpart on Tuesday, recovering from its lowest level in 18 months, as investor appetite for risk showed some signs of stabilizing after being buffeted in recent days.

Equity markets globally gained ground after a three-day slump driven by concerns about aggressive interest rate hikes and tighter coronavirus lockdowns in China.

Canada is a major producer of commodities, including oil, so the loonie tends to be sensitive to the outlook for the global economy.

U.S. crude prices rose 0.2 per cent to $103.29 a barrel as the market balanced demand concerns with impending European Union sanctions on Russian oil, while the Canadian dollar was trading 0.2 per cent higher at 1.2975 to the greenback, or 77.07 U.S. cents.

Earlier on Tuesday, the currency touched its weakest level since November 2020 at 1.3037.

Faced with runaway inflation, Canada’s central bank has taken the rare step of providing guidance on the path of interest rates, as it aims to keep expectations anchored while it unwinds stimulus in an overheating economy.

Bank of Canada Deputy Governor Toni Gravelle is due to speak on Thursday on the topic of commodities, growth and inflation, which could offer further clues on the outlook for rates.

Canadian government bond yields were lower across a flatter curve, tracking a move in U.S. Treasuries. The 10-year eased 5.5 basis points to 2.967 per cent, after touching on Monday its highest intraday level in 11 years at 3.173 per cent.

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