The Canadian dollar weakened on Tuesday against its U.S. counterpart as prices of oil fell and the greenback made broader gains, but losses for the loonie were limited ahead of an expected interest rate hike by the Bank of Canada on Wednesday.
Prices of oil, one of Canada’s major exports, fell as global oversupply encouraged several banks to cut their forecasts for crude for this year and 2018.
U.S. crude prices were down 0.25 per cent at $44.29 a barrel.
The U.S. dollar ground higher against the basket of currencies used to measure its broader strength, helped by the past fortnight’s 25 basis-point rise in 10-year U.S. government bond yields.
At 9:42 a.m. ET, the Canadian dollar was trading at $1.2915 to the greenback, or 77.43 U.S. cents, down 0.2 per cent.
The currency traded in a range of $1.2886 to $1.2926. On Friday, the loonie had touched its highest in nearly 10 months at C$1.2860 after stronger-than-expected domestic jobs data boosted chances of a rate increase this week.
Chances of a hike on Wednesday sit at 88 per cent, data from the overnight index swaps market shows. A nearly 80-per cent chance of a second hike has been implied by December.
After years of being warned that borrowing costs would have to rise eventually, debt-happy Canadians may be about to face a reckoning if the Bank of Canada hikes.
Canadian government bond prices were higher across the yield curve, outperforming U.S. Treasuries. The two-year rose 2.5 Canadian cents to yield 1.146 per cent and the 10-year climbed 17 Canadian cents to yield 1.874 per cent.
The 2-year yield fell 1.5 basis further below its U.S. equivalent to a spread of –24.2 basis points. The spread had touched its narrowest on Tuesday since October at –22.7 basis points.
Canadian housing starts rose more than expected in June as construction intentions in and around Toronto remained strong while Vancouver trended downwards, data from the Canada Mortgage and Housing Corporation showed.
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