The Canadian dollar CADUSD was little changed against a broadly stronger U.S. counterpart on Tuesday, as oil prices climbed to their highest level since 2014 and investors bet that the Bank of Canada would raise interest rates as soon as next week.
The loonie was trading nearly unchanged at 1.2516 to the greenback, or 79.90 U.S. cents, after trading in a range of 1.2487 to 1.2533. It and the Japanese yen were the only G10 currencies not to lose ground against the U.S. dollar.
Canadian restrictions to tackle COVID-19 will likely come at a cost of slower economic growth at the start of the year than in the United States, but that has not stopped investors from raising bets the Bank of Canada will hike interest rates next week.
Money market data showed the chances of the BoC announcing a rate hike on Jan. 26 have increased to nearly 70 per cent after a central bank survey of businesses on Monday pointed to higher wage pressures.
Canadian inflation data for December, due on Wednesday, could offer further clues to the interest rate outlook.
Data on Tuesday showed that Canadian housing starts fell 22 per cent in December compared with the previous month as both multiple urban and single-detached urban starts decreased.
The price of oil, one of Canada’s major exports, rose as possible supply disruption after attacks in the Mideast Gulf added to an already tight supply outlook.
U.S. crude prices were up 1.3 per cent at $84.94 a barrel, while the greenback climbed to a six-day high against a basket of major currencies, bolstered by a jump in U.S. Treasury yields.
Canadian government bond yields also moved higher. The 10-year touched its highest level since April 2019 at 1.829 per cent before dipping slightly to 1.826 per cent, up 2 basis points on the day.
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