The Canadian dollar CADUSD strengthened against its U.S. counterpart on Wednesday, with the currency recovering from a one-month low in choppy trading after the Federal Reserve’s decision to raise interest rates by three quarters of a percentage point.
U.S. stocks clawed back some recent losses, bond yields eased and the safe-haven U.S. dollar lost ground as the Fed announced its biggest rate increase since 1994.
In a subsequent news conference, Fed Chair Jerome Powell referenced the rarity of the size of the rate increase.
“The Canadian dollar is seeing a bit of a bounce here on broad USD selling after Powell said he doesn’t expect moves of this kind to be common going forward,” said Erik Bregar, director, FX & precious metals risk management at Silver Gold Bull.
Investors have worried that the Fed would not be able to control inflation without triggering a recession.
The prospect of lower demand weighed on the price of oil, one of Canada’s major exports. It settled 3 per cent lower at $115.31 a barrel.
The Canadian dollar was trading 0.7 per cent higher at 1.2870 to the greenback, or 77.21 U.S. cents, after earlier touching its weakest since May 13 at 1.2995.
Money markets see about a 60 per cent chance that the Bank of Canada would also hike by three quarters of a percentage point at its next rate decision on July 13.
Canada’s average resale home price fell 4.7 per cent on the month in May and sales fell 8.6 per cent, as rising interest rates continued to cool the country’s once scorching housing market.
Canadian government bond yields were lower across the curve, tracking the move in Treasuries. The 10-year fell 14.1 basis points to 3.486 per cent, after touching on Tuesday the highest since May 2010 at 3.638 per cent.
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