The Canadian dollar CADUSD weakened to a one-month low against its U.S. counterpart on Tuesday as equity markets and oil prices tumbled, while investors braced for a possible smaller interest rate hike by the Bank of Canada.
The Canadian dollar was trading 0.6% lower at 1.3665 to the greenback, or 73.18 U.S. cents, after touching its weakest level since Nov. 4 at 1.3675.
Among G10 currencies, only the Norwegian crown fell more. Norway, like Canada, is a major producer of oil.
“It looks like a combination of risk-off trading in equities and the sell-off in crude oil are taking its toll on the loonie,” said Jay Zhao-Murray, a market analyst at Monex Canada Inc.”
Wall Street’s main indexes slid as investors worried about a longer rate-hike cycle from the Federal Reserve despite warnings of a potential recession next year.
U.S. crude prices settled 3.5% lower at $74.25 a barrel as concerns about global demand offset the bullish impact of a price cap placed on Russian oil.
Traders could also be betting against the loonie “in anticipation of tomorrow’s Bank of Canada meeting, as the path of least resistance is for the BoC to downshift again with a 25 basis point hike,” Zhao-Murray said.
Money markets are betting on a 25-basis-point rate increase when the BoC meets to set policy on Wednesday, with a roughly 25% chance that the central bank would hike by 50 basis points as it did in October.
A slim majority of economists in a Reuters poll expect the larger move.
Canada’s trade surplus widened to C$1.2 billion ($878.2 million) in October as exports and imports both climbed.
The Canadian 10-year yield touched its lowest level since Aug. 16 at 2.767% before recovering slightly to 2.775%, down 4.5 basis points on the day.