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Canadian dollar dips as investors await BoC guidance, potential rate hike

The Canadian dollar edged lower against its U.S. counterpart on Tuesday as investors awaited guidance on the economic outlook that could accompany a potential interest rate hike from the Bank of Canada on Wednesday.

Money markets see a greater than 90 percent chance that the central bank will lift its policy rate by 25 basis points, to 1.50 percent, which would be the fourth hike since last summer.

With a rate hike largely priced in, direction for the loonie could rest on the Bank of Canada’s outlook for the economy.

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“It really depends on how the market interprets the communique tomorrow,” said Bipan Rai, North America head of FX strategy at CIBC Capital Markets.

Rai expects the central bank to use neutral language, which could disappoint investors who are looking for a “dovish hike” in the face of elevated trade uncertainty.

A dovish hike refers to a rate increase accompanied by guidance from the central bank that reduces expectations for additional tightening.

A trade row between Canada and the United States will not be enough to stop the Bank of Canada from raising rates this week, but bigger storm clouds over trade could mean it is the last hike for a while, analysts and financial markets believe.

At 3:30 p.m. EDT, the Canadian dollar was trading 0.1 percent lower at $1.3124 to the greenback, or 76.20 U.S. cents.

The currency, which on Monday touched its strongest intraday level in nearly four weeks, at $1.3066, traded in a range of $1.3103 to $1.3146.

The price of oil, one of Canada’s major exports, was supported by supply concerns in Norway and Libya. U.S. crude oil futures settled 0.4 percent higher at $74.11 a barrel.

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Speculators have raised bearish bets on the Canadian dollar to the most since June 2017, data from the U.S. Commodity Futures Trading Commission and Reuters calculations showed on Monday.

The value of Canadian building permits rose 4.7 percent in May from April, reversing the prior month’s decline, Statistics Canada said.

Data from the Canada Mortgage and Housing Corp showed that Canadian housing starts surged in June.

Canadian government bond prices were higher across a flatter yield curve, with the two-year up 1 cent to yield 1.939 percent and the 10-year up 14 cents to yield 2.153 percent.

The two-year yield touched its highest intraday level since May 25 at 1.959 percent.

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