Home Business C$ gains as BoC hikes 100 bps; traders eye Fed’s next move

C$ gains as BoC hikes 100 bps; traders eye Fed’s next move

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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

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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

the loonie.”

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.

Treasuries.

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)



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