Canadian Dollar Leads G10 Gains As Rate Hike, Tightening Get Going

The Canadian dollar strengthened against its US counterpart on Wednesday as oil prices surged and the Bank of Canada hiked interest rates as expected for the first time since October 2018 despite the crisis in Ukraine.

Canada’s central bank hiked its key interest rate by 25 basis points to 0.50% to help fight inflation and said it would continue with the reinvestment phase of its bond buying program.

The announcement sets the stage for more rate hikes this year. Money markets expect the central bank to hike again in April and about six times in total this year.

The Canadian dollar was trading 0.5% higher at 1.2675 to the greenback, or 78.90 US cents, the biggest gain among G10 currencies. It traded in a range of 1.2665 to 1.2744.

The price of oil, one of Canada’s major exports, touched its highest level in nearly 11 years before paring gains, as supply disruptions mounted following sanctions on Russian banks amid the intensifying war in Ukraine.

US crude prices were up 3.2% at $106.74 a barrel, while US stock indexes advanced after a bruising start to the week, as Federal Reserve Chair Jerome Powell signaled the central bank would start raising rates this month.

Canadian government bond yields were higher across the curve, tracking the move in US Treasuries.

The 10-year rose 6.8 basis points to 1.780%, recovering some ground after it slumped on Tuesday to its lowest intraday level in nearly eight weeks at 1.679%.