March 17, 2015 / 2:08 PM / 2 years ago

Canadian dollar flat ahead of Fed decision; oil prices extend losses

3 Min Read

TORONTO (Reuters) - The Canadian dollar was mostly flat against its U.S. counterpart on Tuesday despite a further slide in crude prices, as investors looked ahead to the U.S. Federal Reserve's latest monetary policy decision and guidance.

Brent crude prices traded at their lowest level since early February, while U.S. crude hovered just above the six-year lows touched on Monday, as worries over an increasing supply glut grew. Canada is a major oil exporter, and the economy has been feeling the effects of the dramatic price plunge. [O/R]

The U.S. dollar fell broadly on concerns that the currency's recent surge could prompt the Fed to take a more cautious stance on interest rate hikes this year. The market has been widely expecting the U.S. central bank to hike rates this summer or fall, which would mark a clear divergence from many other central banks around the world. [FRX/]

"There's certainly an element of people being quite happy to sit on their hands collectively ahead of that Fed statement tomorrow and the subsequent press briefing and projections," said Jeremy Stretch, head of foreign exchange strategy at CIBC World Markets in London.

"That's clearly the dominant factor overarching everything else in the current environment."

At 9:28 a.m. (1328 GMT), the Canadian dollar CAD=D4 was trading at C$1.2785 to the greenback, or 78.22 U.S. cents, little changed from Monday's close of C$1.2780, or 78.25 U.S. cents.

Stretch said that while the currency is headed for more weakness, it will likely be a slow grind toward the C$1.30 level.

Earlier, data showed Canadian manufacturing sales fell more than anticipated in January, hit by a drop in petroleum and coal product sales. The industry has seen sales fall 35 percent in the last seven months alongside the fall in crude prices.

Looking ahead, Canadian retail sales for January and inflation data for February due on Friday will be the next key economic data that could provide further direction for the market.

Canadian government bond prices were mostly higher across the maturity curve, with the two-year CA2YT=RR up half a Canadian cent to yield 0.530 percent and the benchmark 10-year CA10YT=RR rising 10 Canadian cents to yield 1.421 percent.

Editing by Jonathan Oatis

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