By Fergal Smith
TORONTO (Reuters) – The Canadian dollar rose against its U.S. counterpart on Wednesday as investors judged that much of the Bank of Canada’s potential policy easing has been priced into the market and assessed the likely economic impact of the upcoming U.S. election.
Chances of an unusually large 50-basis-point interest rate cut from the BoC on Oct. 23 have climbed to roughly 80% from 50% before the release of cooler-than-expected domestic inflation data on Tuesday.
It would be the first move greater than 25 basis points since the central bank’s easing campaign began in June.
“I think we’ve probably seen most of the loonie weakness for now. A 50-basis-point cut is pretty much fully priced for next week,” said Erik Nelson, a macro strategist at Wells Fargo Securities in London.
The Canadian dollar was trading 0.1% higher at 1.3765 per U.S. dollar, or 72.65 U.S. cents, extending its recovery from a 10-week low of 1.3838 on Tuesday.
It was the only G10 currency to strengthen against the greenback, which was benefiting from investors pricing out a hefty rate cut by the Federal Reserve in November and eyeing a potential victory by former President Donald Trump in the Nov. 5 U.S. presidential election.
Trump’s plan to raise tariffs would likely unsettle global trade but the United States-Mexico-Canada Agreement, the free trade deal between the three countries, and looser U.S. fiscal policy could shield Canada’s economy, Nelson said, adding “I don’t see USMCA being torn up.”
Domestic data showed factory sales falling 1.3% in August and housing starts increasing by less than expected in September, while the price of oil, one of Canada’s major exports, was holding near a two-week low.
The Canadian 10-year yield eased 4.2 basis points to 3.104%, after earlier touching its lowest level since Oct. 3 at 3.085%.
(Reporting by Fergal Smith; Editing by Paul Simao)