Canadian dollar hits 12-day low ahead of interest rate decision

TORONTO: The Canadian dollar edged lower against its US counterpart on Wednesday, adding to sharp losses the day before, as the greenback broadly climbed and investors expected the Bank of Canada to recognize recent weak economic data.

The loonie was trading 0.1% lower at 1.2661 to the greenback, or 78.98 US cents, after touching its weakest intraday level since Aug. 27 at 1.2706. On Tuesday, the loonie was the weakest performer among G10 currencies, declining 0.9%.

The Bank of Canada is due to make an interest rate decision at 10 a.m. EDT.

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The central bank is expected to keep interest rates on hold at a record low of 0.25%, but investors are mindful that the central bank could turn more cautious in its assessment of the economy after data showed Canada's GDP unexpectedly fell in the second quarter.

The data has "thrown increased attention on the meeting," Adam Cole, chief currency strategist at RBC Europe Limited, said in a note. "The central bank will need to acknowledge the weaker outturn."

Weaker growth could imply the economy will take longer to return to full capacity. The central bank has pledged to keep interest rates on hold until economic slack is absorbed, which its latest forecast shows would occur in the second half of 2022.

The US dollar rose to its highest level in a week against a basket of major currencies, while production outages in the US Gulf of Mexico after Hurricane Ida helped support the price of oil, one of Canada's major exports.

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US crude prices were up 1.5% at $69.34 a barrel.

Canadian government bond yields were lower across a flatter curve, tracking the move in US Treasuries. The 10-year yield eased 2.2 basis points to 1.21%.