Canadian dollar rallies as risk appetite rises ahead of Federal Reserve meeting

The Canadian dollar CADUSD strengthened against its U.S. counterpart on Tuesday, adding to its October gains, as oil prices rose and hopes that central banks are nearing the end of their tightening cycles helped underpin investor sentiment.

Equity markets globally rose and the safe-haven U.S. dollar lost ground against a basket of major currencies ahead of the start of a two-day Federal Reserve policy meeting.

The Fed is expected to hike interest rates by 75 basis points when its meeting concludes on Wednesday but hopes have risen that the U.S. central bank will move to a smaller hike of just 50 basis points at its December meeting.

The price of oil, one of Canada’s major exports, recouped losses from the previous session, as a weaker U.S. dollar offset widening COVID-19 curbs in China that have stoked fears of slowing fuel demand in the world’s second-largest oil consumer.

U.S. crude oil futures rose 2.9 per cent to $89.01 a barrel, while the Canadian dollar was trading 0.6 per cent higher at 1.3538 to the greenback, or 73.87 U.S. cents, after moving in a range of 1.3531 to 1.3630.

The currency rallied 1.5 per cent last month.

The Bank of Canada has already downshifted the pace of its tightening at an interest rate decision last week. BoC Governor Tiff Macklem is due to appear before a Canadian Senate committee at 6:30 p.m. ET (2230 GMT).

Canadian government bond yields were lower across the curve, tracking the move in U.S. Treasuries.

The 10-year touched its lowest level since Oct. 5 at 3.153 per cent before rebounding slightly to 3.187 per cent, down 6.3 basis points on the day.

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