The Canadian dollar edged higher against its broadly firmer U.S. counterpart on Tuesday as investors braced for a potential interest rate hike from the Bank of Canada on Wednesday. At 9:24 a.m. EST (1424 GMT), the Canadian dollar was trading 0.1 percent higher at C$1.2414 to the greenback, or 80.55 U.S. cents.
The currency traded in a range of C$1.2414 to C$1.2452. It touched its strongest on Monday in nearly one week at C$1.2403. The Bank of Canada raised interest rates in July for the first time in seven years and then again in September. Its benchmark rate sits at 1 percent. Chances of another rate hike on Wednesday are around 90 percent, the overnight index swaps market indicates.
"Several conditions have been met for the BoC to continue withdrawing monetary stimulus," a BofA Merrill Lynch Global Research report said, including strong growth in the domestic economy, low unemployment, rising underlying inflation and Federal Reserve rate hikes. "NAFTA uncertainty should not have an impact on monetary policy unless the risk of a breakdown materializes," the report said.
The sixth round of the renegotiation of the North American Free Trade Agreement is due to place in Montreal from Jan. 23 to 28. The U.S. dollar climbed against some major currencies including the euro, as sources said the European Central Bank was unlikely at next week's meeting to ditch a pledge to keep buying bonds. The price of oil, one of Canada's major exports, pulled back from a three-year high reached earlier in the session. U.S. crude prices were down 0.3 percent at $64.12 a barrel.
Canadian government bond prices were mixed across the yield curve, with the two-year flat to yield 1.776 percent and the 10-year rising 6 Canadian cents to yield 2.182 percent.-REUTERS
