The Canadian dollar rose 0.2% to 1.41 per U.S. dollar on Tuesday, but the gain stayed modest as oil fell 4.2% to $79.18 a barrel. Traders are positioning for a Federal Reserve rate decision on Wednesday, the same day the Bank of Canada publishes minutes from its latest policy meeting.
Canada's dollar traded 0.2% higher at 1.41 per U.S. dollar, or 70.92 U.S. cents, on Tuesday. Earlier in the session the loonie touched its weakest point since July 14 at 1.4128. The advance remained modest as oil prices declined and market participants looked ahead to a Federal Reserve interest rate decision later this week.
Fed pricing keeps the U.S. dollar near a one-month high
The dollar index, which measures the greenback against a basket of currencies, slipped 0.2% to 101.35, not far from the 101.80 high touched in late June. Markets are pricing a nearly 40% chance of a 25-basis-point rate increase on Wednesday, up from about 20% a week ago, according to LSEG data. Traders see almost a 95% probability of a hike by September.
Those expectations may be overstated, according to analysts. Cooler inflation data and reduced tensions between the U.S. and Iran suggest the central bank faces a higher threshold for raising rates than rate futures markets currently reflect, and markets are likely to read a single interest rate hike as a signal that additional moves will follow.
Oil's 4.2% drop caps the loonie's advance
Oil, a key factor for Canada's export-dependent economy, fell 4.2% to $79.18 a barrel. The decline came amid cautious optimism about a potential resolution to the U.S.-Iran conflict, which has reduced concerns about the inflation outlook.
Bank of Canada minutes and May GDP come next
The Bank of Canada releases minutes from its most recent policy meeting on Wednesday. It held its benchmark rate at 2.25% earlier this month and projected stronger growth in the second half of the year as inflation pressures subside. Canadian GDP data for May follows on Friday, with analysts forecasting a monthly increase of 0.2%.
Sources: Investing.com, Reuters
Trading involves risk.
Risk Disclaimer
