The Canadian dollar CADUSD weakened to a six-week low against its U.S. counterpart on Tuesday, as rising uncertainty about the global economic outlook contributed to financial market volatility and broad-based gains for the safe-haven U.S. currency.
Equity markets globally fell as China’s COVID-19 curbs and fears of aggressive U.S. Federal Reserve interest rate hikes continued to damp risk appetite and lifted the U.S. dollar
to new two-year highs against a basket of major currencies.
“The major drag on the CAD’s performance remains elevated volatility,” strategists at Scotiabank, including Shaun Osborne, said in a note.
“It will be hard for the CAD to reflect tighter BoC policy and still relatively firm commodity prices while risk appetite remains fragile.”
Earlier this month, the Bank of Canada hiked its benchmark rate by half a percentage point to 1%, its biggest single increase in 22 years, to try cooling inflation. On Monday, Governor Tiff Macklem said that the central bank will likely consider another half-percentage-point rate increase at its next policy review on June 1.
The Canadian dollar was trading 0.6% lower at 1.2805 to the greenback, or 78.09 U.S. cents, after touching its weakest level since March 15 at 1.2827. It was the fourth straight day that the loonie lost ground.
The price of oil, one of Canada’s major exports, settled 3.2% higher at $101.70 a barrel as the market turned attention to China’s plans to support its economy.
Meanwhile, a preliminary estimate showed that Canadian factory sales rose 1.7% in March from February.
Canadian government bond yields were lower across the curve, tracking the move in U.S. Treasuries. The 10-year eased 5.1 basis points to 2.750%, after touching last Thursday its highest in nearly 11 years at 2.944%.
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