TORONTO: The Canadian dollar strengthened against its US counterpart on Thursday as the greenback weakened on softening expectations for a Federal Reserve interest rate hike in September.
After the minutes of the Fed's latest policy meeting, released on Wednesday, indicated no rush to raise interest rates, investors exited dollar positions and the probability of a September rate hike fell to around 40 percent from 50 percent previously.
"The Canadian dollar is caught in the middle today. The market is suffering a severe case of indigestion worrying about what the Fed will do in September," said Adam Button, currency analyst at ForexLive in Montreal.
The Canadian dollar finished at C$1.3081 to the greenback, or 76.45 US cents, firmer than the Bank of Canada's official close of C$1.3110, or 76.28 US cents, on Wednesday.
The currency remained rangebound, trading between C$1.3060 and C$1.3176 during the session.
Crude prices, another key driver for the Canadian dollar due to the country's heavy concentration of oil producers, saw a modest bounce off 6-1/2-year lows, settling just above $41 a barrel. Ongoing worries about a global supply glut coupled with potentially waning demand China and other major consumers have weighed heavily on the commodity.
Data on Thursday showed Canadian wholesale trade for June rebounded 1.3 percent, more than the 1 percent economists had forecast, following a 0.9 percent decline in May. The figures supported projections that June will be a more robust month for growth in Canada following a lackluster performance for much of the first half of this year.
Market participants are keenly awaiting Canadian inflation data for July and retail sales data for June, which are due at 8:30 a.m. EDT on Friday.
Button said stronger data would probably not give the Canadian dollar a significant boost, but that weak figures could prompt talk about another Bank of Canada interest rate cut. Markets are currently pricing in just under a 19 percent probability of a 25 basis point interest rate cut in September.
Canadian government bond prices were higher across the maturity curve, with the two-year rising 2 Canadian cents to yield 0.353 percent and the benchmark 10-year rising 31 Canadian cents to yield 1.287 percent.
The Canada-US two-year bond spread widened to -30.4 basis points, while the 10-year spread narrowed to -78.6 basis points.
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