Canadian dollar hits 2-week low as Fed outlook weighs on sentiment

TORONTO (Reuters) – The Canadian dollar fell to a nearly two-week low against its U.S. counterpart on Thursday as investors bet the Federal Reserve would raise interest rates to a higher end point, while data national countries showed a larger trade surplus.

Stock markets fell globally and the US dollar rose against a basket of major currencies after Fed Chairman Jerome Powell said it was ‘very premature’ to think about pausing increases rates and that the peak in rates would probably be higher than expected.

Money markets expect the Fed to raise its key rate to a high of 5.125% next year.

Canada’s trade surplus with the world widened to C$1.1 billion ($827.4 million) in September as exports and imports both increased as values ​​were hit by depreciation of the Canadian dollar.

The currency was trading down 0.4% at 1.3765 against the greenback, or 72.65 US cents, after hitting its lowest level since Oct. 21 at 1.3808. Since August, it has weakened by 7.6%.

The price of oil, one of Canada’s main exports, fell on Thursday as a rise in U.S. interest rates pushed the dollar higher and increased fears of a global recession that would reduce fuel demand. US crude prices fell 2.1% to $88.08 a barrel.

The Government of Canada will present its new fiscal forecasts and update its spending plans later today amid a faltering economy caused by a sharp rise in interest rates.

Yields on Canadian government bonds rose across the curve, following the performance of US Treasuries.

The 2-year rose 4.6 basis points to 3.995% as it still traded 8.7 basis points below the US rate equivalent to a spread of nearly 71 basis points, its widest. since May 2019.

(Reporting by Fergal Smith; Editing by Jan Harvey)

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