Canadian dollar firms as investors ready for potential rate hike

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

By Fergal Smith

TORONTO (Reuters) - The Canadian dollar edged higher against the greenback on Tuesday as some of the recent disquiet in financial markets eased a notch and investors prepared for a potential interest rate hike by the Bank of Canada.

The loonie was trading 0.2% higher at 1.2615 to the U.S. dollar, or 79.27 U.S. cents, after trading in a range of 1.2598 to 1.2669.

On Monday, it touched its weakest intraday level in more than two weeks at 1.2701 amid equity market turbulence.

Wall Street plunged then pared losses on Tuesday as uncertainties surrounding an increasingly hawkish Federal Reserve and rising geopolitical tensions contributed to the market's churn, while the Toronto stock market rose after recouping its earlier decline.

"While the ranges have been quite wide in equities, there's less panic ... I think the loonie is taking a little bit of advantage of that," said Amo Sahota, director at Klarity FX in San Francisco.

"Also, I think it's leaning in a little bit to the potential of a rate hike."

Canada's central bank could raise interest rates at a policy announcement on Wednesday for the first time since October 2018, in an effort to tamp down inflation. Money markets see chances of a hike at about 65%.

Fears that Russia will invade Ukraine have added to investor concerns this week. Canada said on Tuesday it is temporarily withdrawing the families of its diplomats in Ukraine.

The safe-haven U.S. dollar gained ground against a basket of major currencies, while the price of oil, one of Canada's major exports, was supported by bullish signals from a tight supply picture. U.S. crude prices settled 2.8% higher at $85.60 a barrel.

The Canadian 10-year yield eased 1.1 basis points to 1.801% after touching on Monday its lowest intraday level in 10 days at 1.729%.

(Reporting by Fergal Smith; Editing by Bernadette Baum/Mark Heinrich)

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