The Canadian dollar edged higher against its broadly stronger U.S. counterpart on Tuesday, boosted by gains for stocks and as Bank of Canada Governor Stephen Poloz repeated that more interest rates hikes will be needed to keep inflation in check.
Monetary policy in Canada is still stimulative despite an increase in interest rates last week, Poloz told legislators.
Last week, the central bank hiked its key interest rate by 25 basis points to 1.75 per cent, its fifth increase since July 2017. Money markets expect another hike as soon as January.
Major U.S. stock indexes climbed, helped by gains for chip stocks as investors took advantage of cheaper prices following a steep recent pullback for equities.
“USD-CAD is trading tick for tick with developments in equity markets,” said Mazen Issa, senior FX strategist at TD Securities.
As one of the higher yield currencies in the G10, the Canadian dollar tends to be vulnerable to swings in risk sentiment, Issa said.
The U.S. dollar rose to a 16-month high against a basket of major currencies amid growing signs the United States economy is outperforming its peers.
At 4:00 p.m., the Canadian dollar was trading 0.1 per cent higher at 1.3121 to the greenback, or 76.21 U.S. cents.
The currency, which on Friday touched 1.3160, its strongest level in more than six weeks, traded in a range of 1.3102 to 1.3147.
The price of oil, one of Canada’s major exports, was pressured by rising supply and concern that global economic growth and demand for fuel will fall victim to the U.S.-China trade war.
U.S. crude oil futures settled 1.3 per cent lower at $66.18 a barrel.
Canadian government bond prices were lower across the yield curve in sympathy with U.S. Treasuries. The two-year fell 9 cents to yield 2.309 percent and the 10-year declined 41 cents to yield 2.445 percent.
Canada’s gross domestic product data for August is due on Wednesday.