C$ steadies as investors stick to rate hike bets despite GDP dip

·2 min read
FILE PHOTO: A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto

TORONTO (Reuters) - The Canadian dollar was little changed against its U.S. counterpart on Thursday but was on track for a steep quarterly decline, as equity markets globally fell and preliminary domestic data showed the economy contracting in May.

Stocks sank and the safe-haven U.S. dollar rose against a basket of major currencies, as investors worried that the latest show of central bank determination to tame inflation will cause economies to slow rapidly.

Canada's economy likely declined 0.2% in May, following a gain of 0.3% in April which matched estimates.

Money markets expect the Bank of Canada to hike interest rates by three-quarters of a percentage point at its next policy decision on July 13, which would be its biggest hike in 24 years.

The central bank is due to release on Monday quarterly surveys of businesses and households, which include measures of their inflation outlooks. The risk of inflation becoming entrenched in Canada's economy is growing, analysts say.

The Canadian dollar was nearly unchanged at 1.2890 to the greenback, or 77.58 U.S. cents, after trading in a range of 1.2879 to 1.2933.

For the month of June, the loonie was on track to fall 1.9%. It has dropped 3% since the start of the second quarter, which would be its biggest quarterly decline since the start of the coronavirus pandemic in 2020.

The price of oil, one of Canada's major exports, fell 1.3% to $108.39 a barrel as investors weighed a build in U.S. fuel product inventories.

Canadian bond yields were lower across the curve, tracking the move in U.S. Treasuries. The 10-year was down 4.6 basis points at 3.267%, after touching earlier this month a 12-year high of 3.664%.

The last bond auction of the current quarter, an offering of 2-year bonds, is due, with the bidding deadline at 12 p.m. EDT (1600 GMT).

(Reporting by Fergal Smith; Editing by Paul Simao)

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