By Ketki Saxena
Investing.com -- The Canadian dollar gained against its U.S. counterpart, despite the sliding price of crude, one of Canada’s main imports, and continued strength in the USD that had the greenback practically at parity with the Euro for a moment this morning.
At 2:45 p.m ET, the USD/CAD pair was down 0.6% at C$1.2997 to one US dollar.
However, the loonie managed to hold its own against the dollar - and continue to outperform major currencies, supported by the expectations of an aggressive 75 basis move by the Bank of Canada tomorrow.
Shaun Osborne, chief FX strategist at Scotiabank (TSX:BNS) notes that“The CAD continues to trade softly against the USD, whilst piling on gains on the major crosses (ex-JPY this morning) as it outperforms most of the major currency universe”.
“The BoC policy decision tomorrow looms large over the CAD, with markets betting on a ‘rare’ 75-basis-point hike aimed at getting the Bank more in control of the inflation fight. We think the risk of an even more aggressive move cannot be excluded and market pricing concurs.”
Further gains on the loonie were capped by crude prices slide to below $100/barrel, as ongoing worries of recession-driven demand destruction were exacerbated by news of mass-testing and new covid restrictions in China, the world’s second-largest consumer of crude.
Meanwhile, the greenback continues to soar against a basket of currencies particularly the euro, with the USD index reaching levels not seen since 2002, as investors seek out the safe haven as concerns of a global economic cooldown mount. The USD is also being supported by bets of an outsized rate hike by the Fed later this month.
Canadian yields meanwhile were lower across the curve racking the move in U.S. Treasuries. Investors should note that yields on the 10-year and 2-year Canadian government bonds remain inverted for the second day in a row, the first time since March 2020 that Canada’s yield curve has inverted, a key signal that historically precedes a recession,