The Canadian dollar CADUSD was little changed against its U.S. counterpart on Wednesday as oil prices rose and investors awaited potential clues on the outlook for the Federal Reserve’s bloated balance sheet.
Selling gripped the U.S. Treasury market, pushing yields to multiyear highs as traders braced for the Fed to cut its bond holdings and deliver aggressive interest rate hikes to tame inflation in coming months.
Minutes from the central bank’s March meeting, set to be released at 2 p.m. ET (1800 GMT), could indicate how fast and how far policy-makers will proceed in trimming several trillion dollars from the stash of bonds purchased to stabilize financial markets through the pandemic.
The price of oil, one of Canada’s major exports, rose as the threat of new sanctions on Russia raised supply concerns, countering fears of weaker demand following a build in U.S. crude stockpiles and Shanghai’s extended lockdown.
U.S. crude oil futures rose 0.7 per cent to $102.71 a barrel, while the Canadian dollar was trading nearly unchanged at 1.2486 to the greenback, or 80.09 U.S. cents.
The currency’s strongest level of the session was 1.2480, while its weakest was 1.2509.
Meanwhile, Canada’s federal budget, due for release on Thursday, could include increased spending that adds to inflation pressures.
With inflation at a 30-year high, money markets see a 75 per cent chance that the Bank of Canada will hike interest rates by half a percentage point at a policy announcement next week. The central bank has not hiked by that magnitude since May 2000.
Canadian government bond yields were higher across a steeper curve, tracking the move in U.S. Treasuries. The 10-year was up 6.4 basis points at 2.580 per cent, approaching the three-year high it touched last week at 2.607 per cent.
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