The Canadian dollar CADUSD was little changed against its U.S. counterpart on Tuesday as investors awaited a Bank of Canada interest rate decision this week, with the currency steadying after it hit a 10-day low in the previous session.
World stocks rallied as traders held onto hopes that interest rates will soon peak and then fall later this year, even if the latest U.S. jobs data supported the case for another Federal Reserve rate hike next month.
The price of oil, one of Canada’s major exports, rose as speculation that the Fed might ease its policy tightening offset Chinese inflation data pointing to persistently weak demand. U.S. crude prices were up 0.8% at $80.35 a barrel.
The Bank of Canada has already paused its rate hike campaign. The Canadian central bank is expected to take in stride surprising recent economic strength and leave its benchmark rate unchanged at 4.50% at its policy announcement on Wednesday, betting that activity will cool as higher borrowing costs sink in.
The Canadian dollar was nearly unchanged at 1.3505 to the greenback, or 74.05 U.S. cents, after trading in a range of 1.3482 to 1.3516. On Monday, the currency touched its weakest intraday level since March 31 at 1.3553.
Canadian government bond yields were lower across the curve, with the 10-year down 1.7 basis points at 2.886%.
The dollar fell on Tuesday as investors waited on inflation data for further signs of whether price pressures are ebbing and what it means for further Federal Reserve interest rate hikes.
Consumer price data on Wednesday is expected to show headline inflation rose by 0.2% in March, while core inflation rose 0.4%.
“A lot of traders are focused on this inflation data,” said Edward Moya, senior market analyst at OANDA in New York. “Everyone’s trying to get a sense of does the disinflation process return and does this complicate what the Fed does.”
The Fed is seen as likely to hike rates by an additional 25 basis points at its May 2-3 meeting, before pausing in June. Markets are also pricing for the Fed to cut rates by year-end on an expected recession, though Fed officials have stressed the need to keep rates high in order to bring down inflation.
Strong jobs data for March have added to expectations that the U.S. central bank will complete one more rate hike. The data on Friday showed employers added 236,000 jobs while the unemployment rate fell to 3.5%.
The dollar index fell 0.36% to 102.08. The euro gained 0.52% to $1.0918.
The euro was also likely boosted by a rise in European bond yields on Tuesday as traders in the region returned after markets were closed on Friday and Monday for the Easter holiday.
Algorithms trading currencies based on the difference between European and U.S. rates might have sold euros for dollars when U.S. Treasury yields rose after the jobs data while European bond markets were closed, said Simon Harvey, head of FX analysis at Monex Europe.
European bond yields rose sharply on Tuesday, catching up after the break. GVD/EUR
“There’s just that catch-up effect flushing through,” Harvey said.
The dollar also slid against the yen, after jumping on Monday as Bank of Japan Governor Kazuo Ueda signalled no hurry to dial back its massive stimulus. The dollar was last down 0.33% against the Japanese currency at 133.16.
In cryptocurrencies, bitcoin breached the key $30,000 level for the first time in 10 months. It was last up 1.8% on the day at $30,184.