The Canadian dollar rebounded on Monday from a more than two-week low against the U.S. dollar, helped by rising oil prices and month-end hedging flows. Investors are now positioning ahead of a Bank of Canada rate decision later this week, with the loonie's gains capped by growing bets on a Federal Reserve rate hike.
The loonie climbed off session lows to trade around C$1.389 per U.S. dollar, or roughly 72.0 U.S. cents, after the pair touched about C$1.3911 earlier in the day. That earlier level marked the Canadian currency's weakest point since mid-August, before it recovered.
Oil rally lifts the loonie
Brent crude climbed above $90 a barrel, rising more than 3%, after renewed U.S.-Iran military tensions around the Strait of Hormuz raised concerns about global oil supplies. Higher crude prices typically benefit Canada's currency because of the country's large energy-exporting sector.
But the loonie's gains remained limited. Markets increased bets that the Federal Reserve could raise interest rates in September. Separately, Fed Chair Kevin Warsh has argued that further tightening may be needed if inflation fails to move toward the central bank's 2% target, supporting U.S. Treasury yields and the dollar.
Tariffs weighed on last week's move
Canada's currency is also coming off a weaker week. The loonie fell about 1% last week after the United States imposed new 50% tariffs on $20 billion of Canadian imports. That came despite Canada's economy growing at an annualized 3.3% in the second quarter.
Markets now look ahead to the Bank of Canada's policy decision this week, alongside U.S. jobs and inflation data, which could determine the relative path of Canadian and U.S. interest rates. The central bank's latest published rate had USD/CAD at 1.3888 on Aug. 28, compared with 1.3861 the previous day.
Source: Investing.com
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