TORONTO — The Canadian dollar weakened against its U.S. counterpart on Wednesday as investors braced for further tightening from the Federal Reserve following the central bank’s fourth straight interest rate hike of 75 basis points.
The loonie was trading 0.4% lower at 1.3690 to the greenback, or 73.05 U.S. cents, after moving in a range of 1.3550 to 1.3705.
U.S. stocks reversed course and turned sharply lower as Fed Chair Jerome Powell said it was “very premature” to be thinking about pausing rate hikes, with the comments offsetting a signal in the central bank’s policy statement that smaller rate hikes may be on the horizon.
“Rates haven’t peaked, but we are likely getting closer to the end of this nasty tightening cycle,” Sal Guatieri, a senior economist at BMO Capital Markets said in a note.
Canada is a major producer of commodities, including oil, so the loonie tends to be sensitive to shifts in investor sentiment. U.S. crude oil futures settled 1.8% higher at $90 a barrel.
The Canadian dollar will gain less than previously thought over the coming year as the domestic economy has lost some sensitivity to oil prices and with the BoC potentially lagging the Fed in hiking interest rates, a Reuters poll showed.
The BoC has not ruled out another oversized interest rate hike to fight sky-high inflation, Governor Tiff Macklem said on Tuesday, acknowledging Canadians feel “ripped off” by fast-rising prices.
Canadian government bond yields rose across the curve, tracking the move in U.S. Treasuries. The 10-year was up 9.4 basis points at 3.337%. (Reporting by Fergal Smith; editing by Jonathan Oatis and Aurora Ellis)