The Canadian dollar CADUSD moved slightly higher against its U.S. counterpart on Wednesday as oil prices rose and investors grappled with more hawkish than expected projections by the Federal Reserve.
The loonie was up 0.1% at 1.3530 to the greenback, or 73.91 U.S. cents, in volatile trading as equity markets swung in and out of negative territory after a Fed rate decision.
The U.S. central bank raised interest rates by half a percentage point, as expected, and projected that the policy rate would rise to 5.1% in 2023, slightly higher than investors expected.
“The Fed has downshifted the pace of tightening, but they’re not done yet,” Robert Kavcic, a senior economist at BMO Capital Markets, said in a note.
“In addition to how much further they have to go, the major question is how long rates will have to stay at peak levels to ensure inflation pressure is sufficiently quashed.”
On Tuesday, the loonie touched its strongest level since Dec. 5 at 1.3519 as U.S. data showed an easing of inflation pressures.
The price of oil, one of Canada’s major exports, settled 2.5% higher on Wednesday at $77.28 a barrel after OPEC and the International Energy Agency (IEA) both forecast a rebound in demand over the course of next year.
Canadian factory sales rose by 2.8% in October from September on higher sales of petroleum and coal products, as well as food, but the entire increase was driven by higher prices, data from Statistics Canada showed.
Canadian government bond yields were lower across the curve, with the 10-year down 2.3 basis points at 2.822%.