Canadian dollar rallies as risk appetite increases ahead of Fed meeting

TORONTO (Reuters) – The Canadian dollar strengthened against its U.S. counterpart on Tuesday, adding to its October gains, as oil prices rose and hopes central banks neared the end of their cycles tightening helped support investor sentiment.

Global stock markets rose and the safe-haven U.S. dollar lost ground against a basket of major currencies ahead of the start of a two-day Federal Reserve policy meeting.

The Fed is expected to raise interest rates by 75 basis points at the end of its meeting on Wednesday, but hopes have risen that the US central bank will switch to a more modest hike of just 50 basis points at its December meeting. .

The price of oil, one of Canada’s top exports, recouped losses from the previous session as a weaker U.S. dollar offset widening COVID-19 curbs in China that stoked fears of a slowdown in fuel demand from the world’s second largest oil consumer.

U.S. crude oil futures rose 2.9% to $89.01 a barrel, while the Canadian dollar traded up 0.6% at 1.3538 for the greenback, or 73.87 US cents, after moving in a range from 1.3531 to 1.3630.

The currency appreciated 1.5% last month.

The Bank of Canada has already slowed the pace of its tightening in an interest rate decision last week. BoC Governor Tiff Macklem is due to appear before a Canadian Senate committee at 6:30 p.m. ET (22:30 GMT).

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

The 10-year hit its lowest level since Oct. 5 at 3.153% before rebounding slightly to 3.187%, down 6.3 basis points on the day.

(Reporting by Fergal Smith; editing by Jonathan Oatis)

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