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Canadian dollar steadies as investors take stock of Bank of Canada rate hike odds

The Canadian dollar was little changed against its broadly stronger U.S. counterpart on Tuesday but rose against some other major currencies as investors determined that a recent reduction in Bank of Canada interest rate hike bets had gone far enough.

At 4 p.m. EDT (2000 GMT), the Canadian dollar was trading 0.1 per cent lower at $1.3312 to the greenback, or 75.12 U.S. cents.

The currency traded in a range of $1.3281 to $1.3329. On Friday, it touched its weakest level in a year at $1.3384.

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Expectations that the central bank will hike its benchmark rate, which sits at 1.25 per cent, next month have been crimped by rising trade tensions and domestic data on Friday that showed weaker-than-expected retail sales and inflation.

Chances of an interest rate hike in July had sunk to less than 50 per cent from about 70 per cent before the data but recovered on Tuesday to be slightly better than a coin toss.

“There is just a slight move in Canada, both in rates and the currency, today where the feeling was that it has gone too far in terms of taking out the bank (rate) actions for the remainder of the year,” said Mark Chandler, head of Canadian fixed income and currency strategy.

Bank of Canada Governor Stephen Poloz will give a speech and news conference on Wednesday in Victoria, British Columbia.

The U.S. dollar rose against a basket of currencies as escalating concerns of a trade conflict between the United States and China pushed markets to unwind their bets in high-yielding currencies.

The loonie rose more than 0.2 per cent against the Australian dollar and about 0.4 per cent against the euro.

Canada has its own trade dispute with the United States and is also in slow-moving talks to revamp the North American Free Trade Agreement.

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The price of oil was supported by Canadian production losses and uncertainty over Libyan exports. U.S. crude oil futures settled 3.6 per cent higher at $70.53 a barrel.

Canada could lose as much as 10 per cent of its oil supply in July after a power outage last week shut the Syncrude facility in Alberta, which can produce up to 360,000 barrels per day.

The loss of supply could reduce Canadian third quarter growth by about 0.5 per cent but the impact may be transitory, Chandler said.

Canadian government bond prices were lower across a flatter yield curve, with the 10-year falling 6 Canadian cents to yield 2.102 per cent.

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