By Fergal Smith
TORONTO (Reuters) – The Canadian dollar strengthened against its U.S. counterpart on Wednesday, rebounding from an earlier one-month low, as markets priced in a slightly higher endpoint for interest rate hikes following the Bank of Canada’s latest oversized policy move.
The BoC raised its benchmark overnight interest rate by 50 basis points to the highest level in almost 15 years but it eliminated the forward guidance it has used since it began cranking rates higher in March, dropping language that said they would have to rise further.
“It looks like markets have taken it a little more hawkish than expected but our take is we’re in the last throes of the rate tightening cycle and moving pretty close to a hold,” said Darcy Briggs, a portfolio manager at Franklin Templeton Canada.
Money markets moved to price in a terminal rate, or peak level for interest rates this cycle, of 4.43% in June, up about 7 basis points from before the policy decision.
The Canadian dollar was trading 0.4% higher at 1.36 to the greenback, or 73.53 U.S. cents, after touching its weakest level since Nov. 4 at 1.3699.
The currency will rally over the coming year as major commodity consumer China loosens its COVID-19 restrictions and the Federal Reserve potentially concludes its campaign to increase interest rates, a Reuters poll showed.
China on Wednesday announced the most sweeping changes to its resolute anti-COVID regime since the pandemic began three years ago.
Still, the price of oil, one of Canada’s major exports, was down 0.4% at $73.93 a barrel as recession fears weighed.
Canadian government bond yields rose across a more deeply inverted curve.
The 10-year was up 3.2 basis points at 2.808%, after earlier touching its lowest since Aug. 16 at 2.715%.
(Reporting by Fergal Smith; Editing by Kirsten Donovan and Andrea Ricci)