TORONTO (Reuters) – The Canadian dollar weakened against its U.S. counterpart on Wednesday as the greenback rallied broadly and data showed a narrowing of Canada’s trade surplus, but the currency’s decline has capped ahead of a Bank of Canada interest rate decision.
The loonie fell 0.3% to 1.3191 per greenback, or 75.81 US cents, after trading in a range of 1.3151 to 1.3205. Last Thursday it hit its lowest level in seven weeks at 1.3207.
Still, analysts expect the currency to rebound in the coming year, supported by a strong domestic economic outlook and rising interest rates, according to a Reuters poll.
Money markets expect the BoC to hike its benchmark interest rate by three-quarters of a percentage point on Wednesday to 3.25% as it battles to rein in inflation to a nearly four-point high decades, with all eyes on the statement for any changes to his aggressive posture.
The pricing decision is scheduled for 10 a.m. ET (2 p.m. GMT).
Canada’s trade surplus narrowed to C$4.05 billion ($3.08 billion) in July as prices for consumer goods fell, Statistics Canada said. Exports fell by 2.8%, while imports fell by 1.8%.
The price of oil, one of Canada’s top exports, fell nearly 1% to $86.02 a barrel as the market balanced demand concerns over looming recession risks with fears that Russia shuts off all oil and gas supplies.
Meanwhile, the US dollar extended its recent gains against a basket of major currencies as economic troubles in Europe contrasted with a strong US economy.
Yields on Canadian government bonds fell across the curve, following the performance of US Treasuries. The 10-year fell 2.3 basis points to 3.176%, after hitting its highest intraday level in nearly two months at 3.244% on Tuesday.
(Reporting by Fergal Smith; Editing by Bernadette Baum)