TORONTO, Dec 10 (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Wednesday but the move was limited as the Bank of Canada left interest rates on hold and investors awaited a policy decision by the Federal Reserve.
The loonie was trading 0.1% higher at 1.3831 per U.S. dollar, or 72.30 U.S. cents, after initially weakening following the rate decision.
The Canadian central bank moved to the sidelines as expected, after it cut its benchmark rate to a three-year low of 2.25% in October. Governor Tiff Macklem said the economy was proving resilient overall to the effect of U.S. trade measures but uncertainty remains high.
"It was overall a non-event for the currency although the policy statement leaned to the dovish side," strategists at TD Securities, including Jayati Bharadwaj, said in a note.
"While we expect USD-CAD to end the year at 1.38, for CAD to continue to outperform peers you would need some USMCA/trade uncertainty resolution which is harder to see in the imminent horizon."
Talks have broken down on a trade deal in key sectors between the U.S. and Canada, while the United States-Mexico-Canada Agreement, which has shielded much of Canada's exports from U.S. tariffs, is up for joint review in 2026.
U.S. Trade Representative Jamieson Greer said it made sense to discuss trade issues separately with Canada and Mexico given differences in trade relationships with both neighbors.
Investors have priced in about 33 basis points of BoC tightening in 2026, down from 35 basis points before the rate decision. Recent stronger-than-expected jobs data has contributed to the market pricing in rate hikes rather than further easing.
The price of oil , one of Canada's major exports, fell 0.2% to $58.11 a barrel as investors watched for progress in Russia-Ukraine peace talks.
The U.S. dollar (.DXY), weakened against a basket of major currencies as investors anticipated the Fed would cut rates for a third consecutive meeting.
Canadian bond yields moved lower across the curve, with the 10-year down 3.4 basis points at 3.438%. On Monday, it touched a three-month high at 3.500%.
Reporting by Fergal Smith; Editing by Chris Reese
