Canadian dollar hits 10-day low ahead of federal budget

TORONTO (Reuters) – The Canadian dollar fell slightly against its U.S. counterpart on Thursday as investors digested hawkish minutes from the Federal Reserve’s March meeting and awaited the presentation of Canada’s federal budget.

The country’s ruling Liberals will unveil their 2022 budget around 4 p.m. ET (2000 GMT), which Prime Minister Justin Trudeau has promised will be “fiscally responsible” after already pledging billions in new programs and increasing military spending .

Additional fiscal spending could add to inflationary pressures, with money markets already bracing for a rare 50 basis point interest rate hike from the Bank of Canada next week.

The Canadian dollar will strengthen in the coming year as the BoC potentially raises interest rates aggressively, but gains could be capped by the economy’s reliance on the US market. housing, according to a Reuters poll.

The Canadian dollar was trading down 0.1% at 1.2550 against the greenback on Thursday, or 79.68 US cents, after hitting its lowest level since March 28 at 1.2571.

The loonie’s decline came as the US dollar headed for a two-year high against a basket of major currencies. This follows Wednesday’s meeting minutes that showed the Fed was preparing to act aggressively to fight inflation.

The price of oil, one of Canada’s top exports, rebounded from a three-week low as worries about tight supplies further clouded the market outlook. US crude prices rose nearly 2% to $98.14 a barrel.

Yields on Canadian government bonds were higher on a steeper curve, with the 10-year up 3.4 basis points to 2.549%.

(Reporting by Fergal Smith; editing by Barbara Lewis)

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