The Canadian dollar CADUSD weakened against its U.S. counterpart on Thursday but was holding up better than some other G10 currencies as the Federal Reserve’s hawkish stance continued to spook investors.
The loonie was trading 0.1 per cent lower at 1.3470 to the greenback, or 74.21 U.S. cents after trading in a range of 1.3452 to 1.3523.
“The loonie has been tossed around by global developments,” said Jay Zhao-Murray, a market analyst at Monex Canada Inc.
“We saw a really strong (U.S.) dollar buying pressure just starting after the Fed decision and I think that momentum has spilled over into this morning.”
Wall Street indexes fell and the U.S. dollar rose against a basket of major currencies, a day after the Fed held interest rates steady but stiffened its hawkish stance.
Gains for the greenback came as the pound and Swiss franc tumbled after the British and Swiss central banks kept rates unchanged.
The Bank of Canada has also moved to the sidelines but says it could raise borrowing costs again should inflationary pressures persist.
Canada’s record of declining productivity over the past three years is likely to make it more difficult for the Bank of Canada to tame inflation, raising the prospect of additional interest rate hikes even as the economy slows.
Canadian retail sales data for July is due on Friday. Economists expect sales to rise 0.4 per cent after a gain of 0.1 per cent in June.
A dispute between Canada and India had little impact on the FX market, Zhao-Murray said, adding that “both countries are not particularly important to each other on a trade basis.”
India is not among Canada’s 10 largest trade partners.
The Canadian 10-year yield touched its highest level since October 2008 at 3.980 per cent before dipping to 3.954 per cent, up 3.6 basis points on the day.