TORONTO (Reuters) – The Canadian dollar weakened against its U.S. counterpart on Wednesday as the greenback broadly climbed and data showed a narrowing in Canada’s trade surplus, but the currency’s decline was capped ahead of a Bank of Canada interest rate decision.
The loonie was down 0.3% at 1.3191 to the greenback, or 75.81 U.S. cents, after trading in a range of 1.3151 to 1.3205. Last Thursday, it touched its weakest in seven weeks at 1.3207.
Still, analysts expect the currency to rebound over the coming year, supported by solid domestic economic prospects and rising interest rates, a Reuters poll showed.
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 curb inflation at a near-four-decade high, with all eyes on the statement for any change to its aggressive stance.
The rate decision is due at 10 a.m. ET (1400 GMT).
Canada’s trade surplus narrowed to C$4.05 billion ($3.08 billion) in July, as prices fell for consumer goods, Statistics Canada said. Exports were down 2.8%, while imports fell 1.8%.
The price of oil, one of Canada’s major exports, fell nearly 1% to $86.02 a barrel, as the market balanced demand worries related to looming recession risks with fears that Russia will halt all oil and gas supplies.
Meanwhile, the U.S. dollar extended recent gains against a basket of major currencies as economic problems in Europe contrasted with a strong U.S. economy.
Canadian government bond yields were lower across the curve, tracking the move in U.S. Treasuries. The 10-year eased 2.3 basis points to 3.176%, after touching on Tuesday its highest intraday level in nearly two months at 3.244%.
(Reporting by Fergal Smith; Editing by Bernadette Baum)
