TORONTO, Oct 29 (Reuters) - The Canadian dollar strengthened to a four-week high against its U.S. counterpart on Wednesday as the Bank of Canada cut interest rates and signaled a possible end to its easing campaign.
The loonie was trading 0.4% higher at 1.3889 per U.S. dollar, or 72.00 U.S. cents, its strongest level since September 30.
The Bank of Canada reduced its benchmark interest rate by 25 basis points to 2.25%, as expected, and said the rate is at about the right level to keep inflation close to target while helping the economy through a period of structural adjustment due to the U.S.-led trade war.
"Whilst Governor Macklem and Co. left the door open for further easing if necessary, the Bank’s guidance steers away from that scenario as a base case," Nick Rees, head of macro research at Monex Europe Ltd, said in a note. "The result is a somewhat more hawkish outcome than many had expected, with the loonie bouncing higher as a consequence. "
Investors see little chance of another rate cut this year and are leaning against a move in 2026.
An increase in the price of oil, one of Canada's major exports, added to tailwinds for the loonie. U.S. crude futures were trading 1.1% higher at $60.81 a barrel after data showed U.S. crude and fuel inventories drew down more than expected last week.
The U.S. dollar (.DXY), opens new tab steadied against a basket of major currencies ahead of an expected interest rate cut later on Wednesday by the Federal Reserve.
Canadian bond yields moved higher across the curve.
The 10-year yield was up 8.2 basis points at 3.125%, its highest level since October 16, while the gap between it and the U.S. equivalent narrowed by 6.8 basis points to 87.2 basis points in favor of the U.S. note.
Reporting by Fergal Smith; editing by Mark Heinrich
