TORONTO: The Canadian dollar rose against a slumping greenback on Tuesday, hitting its strongest level since the Bank of Canada shocked markets with a rate cut in January.
The US dollar hit an eight-week low as the Federal Reserve meets to set its latest monetary policy. Investors are hoping the central bank will provide clues on when it will raise interest rates.
The US economy has shown signs of slowing in a run of lackluster first-quarter economic data, pushing expectations for a rate hike toward the second half of 2015.
On Tuesday, a report on US consumer confidence showed a slump in April.
Assuming Wednesday's Fed statement brings no major change in interest rate expectations, "we would be looking for the (US) dollar-positive trend to reassert itself fairly quickly," said Adam Cole, global head of FX strategy at Royal Bank of Canada.
Domestically, Bank of Canada Governor Stephen Poloz said the negative effects of the sharp fall in oil prices were hitting Canada faster than expected, but the shock did not appear to be larger than anticipated.
At 11:05 a.m. EDT (1505 GMT), the Canadian dollar was at C$1.2030 to the greenback, or 83.13 US cents, stronger than the Bank of Canada's official close on Monday of C$1.2101, or 82.64 US cents. The loonie has traded between C$1.2021 and C$1.2116 on Tuesday.
Looking ahead, US first-quarter GDP data is due at 8:30 a.m. EDT on Wednesday, followed by the Fed statement at 2:00 p.m.
US crude prices were flat at around $57, while Brent crude was barely lower at $64.80. The weaker US dollar has provided some support for oil, with prices holding near 2015 highs.
Canadian government bond prices were mixed across the maturity curve, with longer-term debt declining. The two-year price was down 1.5 Canadian cents to yield 0.655 percent, and the benchmark 10-year fell 59 Canadian cents to yield 1.522 percent.
The Canada-US two-year bond spread was 9.6 basis points, while the 10-year spread was -43.1.
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