By Fergal Smith
TORONTO (Reuters) -The Canadian dollar was little changed against its U.S. counterpart on Thursday as a decline in risk appetite was offset by the Bank of Canada‘s more hawkish stance, with the currency holding on to its gains from the prior day.
The loonie was trading nearly unchanged at 1.2500 to the greenback, or 80.00 U.S. cents, having traded in a range of 1.2472 to 1.2534.
It was one of only three G10 currencies to keep pace with the U.S. dollar as U.S. stocks dived on reports that President Joe Biden planned to propose nearly doubling the capital gains tax.
The others were the Swiss franc and the Japanese yen, which are both renowned safe-haven currencies.
“The BoC’s relatively hawkish move yesterday may have moved USD-CAD’s trading band down a notch,” said Ronald Simpson, managing director, global currency analysis at Action Economics, adding that the shift in yield spreads has supported the loonie.
The gap between Canada‘s 10-year yield and its U.S. equivalent has declined to just 3 basis points in favor of the U.S. bond from 19 basis points at the start of the month.
On Wednesday, the Canadian dollar touched its strongest intraday level in one month at 1.2455 after the Bank of Canada signaled it could start hiking interest rates in late 2022. The central bank sharply boosted its outlook for the Canadian economy and cut the pace of bond purchases to C$3 billion a week from C$4 billion.
“I would advise penciling in a further taper (of bond buying) at the July MPR meeting,” Derek Holt, vice president of capital markets economics at Scotiabank, said in a note, referring to the bank’s monetary policy report.
The price of oil, one of Canada‘s major exports, settled 0.1% higher at $61.43 a barrel.
Canada‘s 10-year yield was little changed at 1.522%.
(Reporting by Fergal Smith; Editing by William Maclean and Peter Cooney)
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