USD/CAD back under 1.0680 on Fed Rate Outlook

The Canadian dollar rose from the lowest in three years on bets the Federal Reserve will keep interest rates low longer than forecast while it slows the pace of its stimulative asset purchases.

The currency advanced against all of its major peers as crude oil, the nation’s largest export, climbed to a two-month high. It gained against its U.S. counterpart for the first time in four days before a report tomorrow forecast to show Canadian inflation in November remained at the bottom end of the central bank’s target band. The Fed said yesterday it will cut its $85 billion of monthly bond purchases by $10 billion even as it extended the time line for almost-zero interest rates.

The Canadian dollar’s advance “is just a correction to the knee-jerk reaction of yesterday,” said Darcy Browne, managing director of currencies at Canadian Imperial Bank of Commerce’s CIBC World Markets unit, by phone from Toronto. “The direction of dollar/Canada is stronger dollar, weaker Canada. I think we’re not going to be cutting rates here — it looks like the Bank of Canada would prefer we weaken the currency, and so I think that’s what the market is going to set out it to do.”


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