Canadian dollar weaker against greenback after Fed minutes, oil fall
By Alastair Sharp
TORONTO (Reuters) - The Canadian dollar notched a small loss against a broadly higher U.S. dollar on Wednesday, as the release of minutes from the last U.S. Federal Reserve meeting left a December interest rate hike in play and crude oil prices fell.
The Canadian currency is trading near its weakest level in more than six months as investors focus on monetary policy divergence between Canada and the United States, its main trading partner, which is also widening the spread between the two countries' bond yields.
"The two-year spread is pretty extended right now, it's at the wider end of its multi-month range just above 25 basis points and that's really been the core piece driving the Canadian dollar weaker over the last little while," said Eric Theoret, currency strategist at Scotiabank.
The Canadian dollar CAD=D4 settled at C$1.3259 to the greenback, or 75.42 U.S. cents, weaker than Tuesday's close of C$1.3241, or 75.52 U.S. cents.
The minutes released on Wednesday showed that several voting Fed policymakers judged a rate hike would be warranted "relatively soon" if the U.S. economy continued to strengthen but doubts on inflation remained.
Theoret said the currency could move into the C$1.33-C$1.35 range as a December Fed hike - currently seen by investors as a roughly 70 percent probability - gets more fully priced in.
"It's really dominating as a driver, given we've had a pretty tremendous rally in oil and the Canadian dollar hasn't really blinked at all," he said.
Oil prices settled 1 percent lower on Wednesday after OPEC reported its September oil output hit eight-year highs, offsetting optimism over the group's pledge to bring a global crude glut under control.[O/R] Continued...