Canadian dollar slips as investors await Bank of Canada, Fed rate decisions

The Canadian dollar weakened on Tuesday as investors positioned themselves ahead of interest rate decisions from the Bank of Canada and the U.S. Federal Reserve, both due on Wednesday.

The loonie came under slight pressure as traders weighed inflation risks against concerns about economic growth in Canada and the United States.

The U.S. dollar rose 0.07% to C$1.4022, leaving the Canadian dollar at approximately 71.32 U.S. cents.

The Canadian dollar paused on Monday after seven consecutive sessions of gains, its longest winning streak since March 2022, as traders took stock of the currency’s recent rally.

Markets are focused on the Bank of Canada’s decision, with economists divided over the balance between persistent inflation risks and slowing domestic economic growth. A Reuters poll published last week found that a majority of surveyed economists expected the central bank to raise its overnight interest rate by 25 basis points to 2.50%.

The Federal Reserve’s decision on Wednesday will also influence the loonie, particularly through its implications for the interest rate differential between the two countries.

Oil prices remain another important driver for the Canadian dollar, given Canada’s status as a major energy exporter. Movements in crude prices and broader demand for the U.S. dollar could add to currency volatility as traders await fresh signals from policymakers.