CANADA FX DEBT-C$ steadies near one-month low ahead of BoC rate decision

BY Reuters | ECONOMIC | 12/07/22 09:32 AM EST


Loonie touches its weakest since Nov. 4 at 1.3699


Price of U.S. oil rises 0.5%


Canadian bond yields ease across curve

TORONTO, Dec 7 (Reuters) - The Canadian dollar was little changed against its U.S. counterpart on Wednesday after earlier touching a one-month low, as investors braced for another Bank of Canada interest rate hike but were unsure as to the size of the move.

The Bank of Canada is expected to raise its benchmark overnight rate to its highest level in 14 years as it seeks to tame inflation, and it may signal its tightening cycle is near an end as the economy begins to slow, analysts said.

Money markets are betting on a 25-basis-point rate increase, with a 37% chance that the central bank would hike by 50 basis points, as it did in October when lifting rates to 3.75%.

A slim majority of economists in a Reuters poll expect the larger move. The policy decision is due at 10 a.m. ET (1500 GMT).

The Canadian dollar was trading nearly unchanged at 1.3650 to the greenback, or 73.26 U.S. cents, after touching its weakest level since Nov. 4 at 1.3699.

World stocks eased and bonds remained supported after a chorus of Wall Street bankers warned about a likely recession ahead, tempering optimism about China's major shift in its tough zero-COVID policy.

Canada's dollar will rally over the coming year as major commodity consumer China loosens its COVID-19 restrictions and the Federal Reserve potentially concludes its campaign to increase interest rates, a Reuters poll showed.

The price of oil, one of Canada's major exports, rose as hopes of higher Chinese demand helped offset recession fears. U.S. crude prices were up 0.5% at $74.62 a barrel.

Canadian government bond yields fell across the curve, tracking the move in U.S. Treasuries.

The 10-year touched its lowest since Aug. 16 at 2.745% before recovering slightly to 2.754%, down 2.2 basis points on the day. (Reporting by Fergal Smith; Editing by Kirsten Donovan)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

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