The Canadian dollar held steady near a four-week high on Wednesday, as investors maintained their bets on a Bank of Canada interest rate hike next week. The loonie was trading at 1.4050 per US dollar, or 71.17 US cents, after reaching its strongest level since September 22 at 1.4030 the previous day.
Analysts attributed the currency’s strength to a softer US dollar and a more hawkish stance from the Bank of Canada. Tony Valente, senior FX dealer at AscendantFX, noted that the central bank expects to significantly raise its quarterly inflation forecast this month due to high crude oil and petroleum product prices.
Markets are pricing in an 80% chance that the Bank of Canada will raise its benchmark interest rate by 25 basis points to 2.50% on October 28. However, Valente cautioned that uncertainty remains, particularly around trade relations between the US and Canada, which could impact economic growth and the loonie’s performance.
Canada and Ontario announced a C$9 billion joint support package to help the steel and auto sectors cope with US tariffs and boost critical mineral supply chains. Meanwhile, Canadian retail sales data for August, due on Friday, is expected to show a 1.3% rebound after a 0.7% decline in July.
The price of oil, a key Canadian export, fell 0.9% on Wednesday to $96.98 a barrel, as investors weighed potential progress in Russia-Ukraine talks against declining US oil stocks. The US dollar edged 0.1% lower against a basket of major currencies, while Canadian government bond yields eased, with the 10-year yield down 2.6 basis points at 3.867%.