Canadian dollar falls after flurry of central bank rate hikes

The Canadian dollar CADUSD weakened against its U.S. counterpart on Thursday as tighter monetary policy globally weighed on investor sentiment and domestic data showed further weakening in the housing market.

Shares fell globally after major central banks, including the Federal Reserve and the European Central Bank, delivered their final policy decisions of the year, with the Fed signaling it expected interest rates to stay higher for longer.

Canada is a major producer of commodities, including oil, so the loonie tends to be sensitive to shifts in investor sentiment.

U.S. crude oil futures were down 0.5 per cent at $76.89 a barrel, weighed by demand concerns.

The Canadian dollar was trading 0.4 per cent lower at 1.3605 to the greenback, or 73.50 U.S. cents, after moving in a range of 1.3541 to 1.3632.

Canadian home sales declined 3.3 per cent in November from October, data from the Canadian Real Estate Association showed on Thursday, while the national average selling price was down 12 per cent on the year.

Separate domestic data showed that housing starts dipped 0.2 per cent in November compared with the previous month.

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

The 5-year touched its lowest since Aug. 16 at 2.882 per cent before recovering to 2.920 per cent, down 2.6 basis points on the day.

The Bank of Canada likely faces a challenge in 2023 convincing markets not to expect a swift reversal in its interest rate hiking campaign, as the recent decline in bond yields already works to lower some domestic borrowing costs.

Canada is due to auction C$3.5-billion ($2.6-billion) of 2-year bonds, with the bidding deadline set for 12 p.m. ET (1700 GMT).

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