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The Canadian dollar CADUSD edged lower against its U.S. counterpart on Thursday but stayed within reach of an earlier six-week high as investors bet that interest rate hikes by the Federal Reserve could be nearing a peak.

Wall Street’s major indexes rose as a contraction in the U.S. economy for the second straight quarter raised expectations of a less aggressive monetary policy by the Fed.

The market wants to see peak rates from the Fed “sooner rather than later,” said Amo Sahota, director at Klarity FX in San Francisco.

“It has improved risk sentiment and that led the loonie to hit the best rates it has seen for a little while.”

Fed tightening is expected to peak in December, money market data shows.

Canada is a major exporter of commodities, including oil, so its currency tends to be sensitive to investor appetite for risk.

U.S. crude oil futures settled 0.9% lower at $96.42 a barrel as concerns about a potential global recession that would knock energy demand offset lower crude inventories and a rebound in U.S. gasoline consumption.

The Canadian dollar was trading 0.1% lower at 1.2834 to the greenback, or 77.92 U.S. cents, after touching its strongest level since June 13 at 1.2796.

Canadian economic data showed that payroll employment decreased by 26,100 in May, the first decline since May 2021. GDP data for May, due on Friday, could offer further clues on the strength of the domestic economy.

Canadian government bond yields were lower across the curve, tracking the move in U.S. Treasuries.

The 10-year touched its lowest since April 14 at 2.615% before recovering slightly to 2.645%, down 12.1 basis points on the day.

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