C$ steadies as investors eye prospects of 'hawkish' BoC

·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 was little changed against its broadly stronger U.S. counterpart on Tuesday as investors assessed encouraging U.S. services industry data and awaited a Bank of Canada policy announcement this week.

Money markets expect the BoC to raise its policy rate by three-quarters of a percentage point on Wednesday to a level of 3.25% in an effort to cool inflation.

Further hikes are then expected that would lift the policy rate to a peak between 3.75% and 4% next year.

"We expect the (BoC) statement to keep a hawkish lean," Elsa Lignos, global head of FX strategy at RBC Europe Limited, said in a note. "Having a market pricing in more hikes is a better outcome for the BoC than pricing in less."

Aggressive tightening could be unsettling for Canada's economy, including the housing market.

Canada's soaring house prices will decline sharply next year, but still not enough to make them affordable as the Bank of Canada is set to continue raising interest rates and keep them higher for longer, Reuters polls showed.

The Canadian dollar was nearly unchanged at 1.3147 to the greenback, or 76.06 U.S. cents, after trading in a range of 1.3097 to 1.3170.

It was the only G10 currency other than sterling to keep pace with the U.S. dollar. The greenback added to recent gains against a basket of major currencies after a report on the U.S. services industry reinforced the view that the economy was not in recession.

Canada sends about 75% of its exports to the United States, including oil, which settled 1 cent higher at $86.88 a barrel.

Canadian government bond yields were higher across a steeper curve. The 10-year touched its highest since July 13 at 3.244% before dipping to 3.205%, up 11 basis points on the day.

(Reporting by Fergal Smith; Editing by Nick Zieminski and Jonathan Oatis)