Canadian dollar recovers from near nine-month low as greenback dips

TORONTO (Reuters) - The Canadian dollar firmed against its U.S. counterpart on Monday, rebounding from an earlier near nine-month low, as broader losses for the greenback offset dwindling expectations for Bank of Canada interest rate hikes.

A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto January 23, 2015. REUTERS/Mark Blinch

At 4 p.m. ET (2000 GMT), the Canadian dollar CAD=D4 was trading 0.3 percent higher at C$1.3062 to the greenback, or 76.56 U.S. cents.

The currency’s strongest level of the session was C$1.3046, while it touched its weakest since June 28 at C$1.3124.

“It really feels like a little bit of a pause here (in the loonie’s decline) ahead of the FOMC,” said Brad Schruder, director of corporate sales and structuring at BMO Capital Markets. “I’m not sure the market is buying expectations for rate hikes from the Bank of Canada for 2018.”

The Canadian dollar fell more than 2 percent last week as comments from Bank of Canada Governor Stephen Poloz reinforced expectations the central bank can take its time raising rates after hiking three times since last July.

Chances of a rate hike by May have slipped to less than 60 percent from around 75 percent earlier this month, data from the overnight index swaps market shows. BOCWATCH

In contrast, financial markets look for the Fed to increase rates on Wednesday for the first time this year.

The U.S. dollar .DXY fell against a basket of major currencies after four straight weeks of gains as a Reuters report, that European Central Bank officials were shifting their debate from bond purchases to the expected path of interest rates, boosted the euro.

U.S. President Donald Trump appears to be “enthusiastic” about coming to an agreement on renegotiating the North American Free Trade Agreement (NAFTA), Canada’s Prime Minister Justin Trudeau said.

Canada sends about 75 percent of its exports to the United States. Its economy could be hurt if NAFTA is scrapped.

The price of oil, one of Canada’s major exports, slipped as Wall Street slid and energy market investors remained wary of growing crude supply.

U.S. crude oil futures CLc1 settled 0.5 percent lower at $62.06 a barrel.

Canadian government bond prices were lower across the yield curve, with the two-year CA2YT=RR down 3.5 Canadian cents to yield 1.783 percent and the 10-year CA10YT=RR falling 24 Canadian cents to yield 2.166 percent.

Bank of Canada Senior Deputy Governor Carolyn Wilkins will deliver a speech on Thursday, while domestic inflation data for February is due on Friday.

Reporting by Fergal Smith; Editing by Susan Thomas and Marguerita Choy