Canadian dollar falls to nearly 5-month low as Bank of Canada halts rate hikes.

On Wednesday, the Canadian dollar lost value against its U.S. counterpart, reaching a level close to a five-month low. This was due to the Bank of Canada pausing its tightening campaign, while the Federal Reserve had taken a more hawkish stance earlier in the week.

On Wednesday, the Bank of Canada made the expected decision to keep its key overnight interest rate unchanged at 4.50%, making it the first major central bank to pause its tightening campaign in response to an anticipated easing of high inflation. Portfolio manager Darcy Briggs noted that the bank is currently dependent on data and assessing the lagged impact of previously implemented hikes. Meanwhile, Federal Reserve Chair Jerome Powell reiterated his message of potentially higher and faster interest rate hikes, causing the US dollar to strengthen against major currencies such as the Canadian dollar (also known as the loonie).

Despite unexpected positive trade surplus data of C$1.9 billion ($1.4 billion) in January, driven by broad-based gains in exports, the Canadian dollar was trading 0.4% lower against the U.S. dollar, at 1.38 to the greenback, or 72.46 U.S. cents. The loonie had touched its weakest level since Oct. 21 at 1.3815. Canada’s main export, oil, settled down 1.2% at $76.66 a barrel, extending the previous day’s losses. Meanwhile, Canadian government bond yields were lower across a flatter curve, with the 2-year easing 1.9 basis points to 4.308%, and the 10-year down 4 basis points at 4.278%. The 2-year fell 7.2 basis points further below its U.S. equivalent to a gap of about 76 basis points, its largest since April 2019.