TORONTO (Reuters) - The Canadian dollar was little changed against its U.S. counterpart on Monday, lagging most other G10 currencies as the greenback broadly declined ahead of U.S. midterm elections and a Federal Reserve meeting this week.
The U.S. dollar .DXY dipped after three consecutive weeks of gains as investors took profits before Tuesday’s elections, which may fuel volatility in global markets. The Fed interest rate decision is due on Thursday.
“This is very much a U.S. dollar move,” said Mark Chandler, head of Canadian fixed income and currency strategy at RBC Capital Markets. “Where we have seen the U.S. dollar weaken, the second weakest tends to be Canada in that time frame.”
Canada’s economy is closely tied to the United States, where it sends about 75 percent of its exports.
Both countries are at similar points of the economic cycle, with stronger growth than some other counties and central banks that are raising interest rates, Chandler said.
Canada’s economy will continue to grow faster than its potential over the coming quarters as U.S. fiscal stimulus boosts demand for its exports, setting the stage for more Bank of Canada interest rate hikes, a Reuters poll of economists showed last month.
Bank of Canada Governor Stephen Poloz told a business audience in London that market volatility, a stronger U.S. dollar and higher yields for long-term bonds are signs that markets are becoming more normal, rather than an indication of trouble.
Money markets expect the central bank to raise interest rates again in January. The Bank of Canada hiked interest rates last month to a level of 1.75 percent. It was the fifth hike since July 2017.
At 3:35 p.m. (2035 GMT), the Canadian dollar CAD=D4 was trading nearly unchanged at 1.3106 to the greenback, or 76.30 U.S. cents. The currency traded in a narrow range between 1.3072 to 1.3116.
Among other G10 currencies, sterling did best, rising 0.5 percent on hopes of a Brexit deal breakthrough.
The price of oil, one of Canada’s major exports, steadied after a steep five-day fall, as the United States formally imposed punitive sanctions on Iran but granted eight countries temporary waivers allowing them to keep buying oil from the Islamic Republic.
U.S. crude oil futures CLc1 settled 0.1 percent lower at $63.10 a barrel.
Canadian government bond prices were higher across a flatter yield curve, with the 10-year CA10YT=RR rising 13 Canadian cents to yield 2.518 percent.
Reporting by Fergal Smith; Editing by David Gregorio and Lisa Shumaker