The Canadian dollar CADUSD was little changed against its U.S. counterpart on Wednesday, giving up its earlier gains, as the greenback broadly climbed and the Bank of Canada opened the door to an even faster pace of interest rate hikes.
Canada’s central bank went ahead with a second consecutive half-percentage-point interest rate hike, as expected, and said it was prepared to act “more forcefully if needed” to bring inflation back to target.
“The CAD edged a little lower in the aftermath of the decision, perhaps reflecting broad gains for the USD following strong ISM data,” strategists at Scotiabank, including Shaun Osborne, said in a note.
“But the rate increase was accompanied by hawkish language which suggests limited CAD downside.”
The U.S. dollar jumped against a basket of major currencies as data showed U.S. manufacturing activity picking up in May.
Canadian manufacturing activity also expanded at a faster pace in May, as firms raised output to meet strong demand for their goods and inflation pressures showed some signs of easing.
The Canadian dollar was trading nearly unchanged at 1.2650, or 79.05 U.S. cents, after touching its strongest since April 22 at 1.2610.
The price of oil, one of Canada’s major exports, rose after European Union leaders agreed to a partial and phased ban on Russian oil and as China ended its COVID-19 lockdown in Shanghai.
U.S. crude prices were up 1.5% at $116.36 a barrel.
Canadian government bond yields were higher across a flatter curve, tracking the move in U.S. Treasuries.
The 2-year rose 12 basis points to 2.785%, while the 10-year was up 8.2 basis points at 2.972%.
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