TORONTO — The Canadian dollar
strengthened against its U.S. counterpart on Wednesday as the
Bank of Canada hiked interest rates by a full percentage point,
but the rally was limited as investors reasoned the Federal
Reserve could also hike by that magnitude.
The loonie was trading 0.4% higher at 1.2975 to the
greenback, or 77.07 U.S. cents, after trading in a range of
1.2937 to 1.3060.
The Bank of Canada’s rate hike was the biggest in 24 years
and surprised markets, which had been expecting the central bank
to match the Federal Reserve’s latest move of three-quarters of
a percentage point.
It left the BoC’s policy rate at 2.5%.
“Given the surprise, the loonie has not strengthened all
that much,” said Greg Anderson, global head of foreign exchange
strategy at BMO Capital Markets in New York.
“I think the reason for that is that the 100 basis points
move by the BoC has just been immediately projected onto the
Fed. This brings out the risk aversion – chances of a central
bank-induced recession have gone up and that’s generally bad for
Supporting the case for further aggressive Fed tightening,
U.S. consumer prices jumped 9.1% in the 12 months through June,
the biggest gain since November 1981.
The price of oil, one of Canada’s major exports, clawed back
a small part of its recent declines. U.S. crude oil futures
settled 0.5% higher at $96.30 a barrel.
Canadian government bond yields were mixed across a more
deeply inverted yield curve, tracking the move in U.S.
The 2-year rose 8.9 basis points to 3.315%, while the
10-year was down 2.7 basis points at 3.163%.
(Reporting by Fergal Smith in Toronto
Editing by Paul Simao and Matthew Lewis)